Piracy workarounds

Hello! This week our top story is about how Russian publishers are to issue “summaries” instead of Western non-fiction books to which they don’t have the rights. We also look at the Finance Ministry’s plans to squeeze more cash out of Russian oil companies and whether Russia and North Korea’s alliance is anything more than situational.

Russia to issue foreign books as ‘summaries’ amid Western boycott

International isolation is making life tough for Russian businesses that earn money from content — movies, games and books. As a result of refusals by Western companies to license their content for Russia amid the war in Ukraine, movie theaters are either swapping Hollywood releases for Russian titles or coming up with ways to show Western hits without technically committing piracy. For publishers, it’s more complicated — but it seems that foreign books will now appear in Russian as “summaries.” The sensational memoirs of Prince Harry are set to be the first such summary released to a Russian audience.

• Despite a variety of Western boycotts, it has turned out to be easy to solve the problems of importing goods after the start of the war: in particular, iPhones and other tech products can be purchased via intermediaries in China or Central Asia. However, with intellectual property, such as movies and books, things are more complicated. Releasing them without permission from the copyright holder is an act of pure piracy, and not everyone in Russia is willing to take such risks.
• Movie theaters have come up with different ways of operating. Since last summer, small and regional chains have been offering bootleg screenings under the premise of a “free gift.” Audiences buy tickets to see a Russian film, then as a “bonus” they get to see the latest Hollywood blockbuster. This conceals piracy with a fig leaf: the theater is not technically selling tickets for a film for which it does not have the rights.
• Big cinema chains in Moscow and Petersburg have not, so far, followed suit. They are anxious not to harm their relationships with Western distributors. Cinema Park – Formula Kino, one of Russia’s biggest chains, announced in August it would offer a “pre-screening service.” However, within 12 hours it abandoned the plan, claiming it “only wished to draw attention to the plight of movie theaters.” In December, newspaper Izvestia advised Muscovites to fly to Siberia to see Avatar 2.
• Now, publishers are looking for their own workaround. And Russia’s leading publishing house, Eksmo-AST, has decided to release Prince Harry’s controversial memoirs as a “summary” – a retelling of the stories without direct reference to the original. “This summary will reflect the key ideas of the book without using excerpts from it,” the director of the publishing house told newspaper Kommersant. “The author read the book in English and will retell it in her native language.” The publisher’s lawyers believe this is permitted under Russian and foreign law — and they have plans to release other non-fiction books in the same format.
• However, other lawyers have warned that it could plausibly be regarded as piracy. “If the summary is a couple of pages, that can probably be considered a description of the book,” said Sergei Zuikov, a lawyer who specializes in intellectual property. “However, if a 500-page book appears in a 500-page summary that is as close as possible to the original length, that clearly infringes copyright.” The maximum compensation a court can order for a breach of copyright is twice the value of the materials sold. But lawyers believe it is unlikely that Western publishers would seek to pursue lawsuits in Russia at the moment.

Why the world should care

It’s a mistake to assume that international isolation and exclusion from global business is making the lives of Russians unbearable. However, it does create thousands of day-to-day challenges — and the solutions (if there are any) can be difficult to implement.

Russia blocks access to The Bell's website

The Russian authorities have been continuing their efforts to put The Bell out of business. Internet watchdog Roskomnadzor on Sunday blocked our site throughout Russia. Now, Russian users can only read The Bell using a VPN or on social media.

Roskomnadzor claimed it blocked our site because we “regularly publish inaccurate information about the special military operation,” the official euphemism for the war in Ukraine. The real reason is obvious: our work is to uncover and analyze facts for our readers — and facts are dangerous for the Russian authorities.

Despite this blockage and our status as a “foreign agent,” our work continues. That is the best thing we can do for our country and the wider world.

Please support us! Thanks to you, hundreds of thousands of readers in Russia can keep reading our independent journalism. You can donate here.

Kremlin looks to squeeze cash from oil companies

The Russian authorities continue their efforts to balance the books: after demanding funds from big business, they are now looking at oil companies. In particular, the Finance Ministry is changing the way it calculates taxes for oil companies. Instead of relying on prices from energy agency Argus, which currently shows a $40 discount on Russia’s Urals blend compared to benchmark Brent, the ministry will soon use its own formula.

The new formula

The Finance Ministry has introduced legislation that will change the rules for calculating taxes on oil companies. At present, the ministry bases Mineral Extraction Tax (MET) and other oil taxes on the market price for Urals crude in the European ports of Rotterdam and Augusta, as reported by Argus. These are the same prices that the ministry publishes every two weeks as its “average price for Urals oil.” The discount on Urals compared to Brent is derived from these figures. Since the European oil embargo came into force late last year, the price for Urals has dropped, and the discount to Brent increased to up to $40 per barrel.

From April 1, the Finance Ministry will abandon Argus’ prices altogether. The Urals prices will still be pegged to Brent, but the discount will now be set by the Russian authorities.

Initially, the discount will be dropped to $34 per barrel and it will continue to fall step by step until it reaches no more than $25 per barrel in July. This will increase the tax burden on oil companies and help ease Russia’s budget deficit. That deficit is increasing in part due to a fall in oil and gas revenues — last month they were down 46% year on year.

Under the new arrangements, Russia is expected to gain up to 700 billion rubles ($9.4 billion) in additional revenue. The Finance Ministry’s proposed legislation is a compromise between the government and the oil industry. Initially, the proposals were much tougher: the ministry wanted to cut the discount to $20 and impose the changes as quickly as possible.

Combined with an announced reduction in oil production, the new formula will help the Finance Ministry raise the 8 trillion rubles ($115 billion) in oil-and-gas revenues envisioned in the 2023 budget. Economist Alexander Isakov of Bloomberg Economics Russia calculated that, if expenditure and non-oil and gas revenues remain as planned, the overall budget deficit will be just 4.3 trillion rubles. That’s not far off the planned 2.9 trillion ruble deficit.

Can the oil companies pay?

With Western sanctions and an enforced pivot towards Asian markets, Russian oil companies may not seem like an obvious cash cow. However, some believe they are not suffering nearly as much as advertised.

Since the European Union imposed its oil embargo, the Russian oil market has been extremely opaque — and analysts suspect that companies are, in fact, selling at a discount far less than the publicized $35-40.

Sergei Vakulenko, a non-resident fellow at the Carnegie Endowment for Peace, has explored this theory in at least two articles, arguing that the Argus prices for Urals lost any meaning after the start of the war. Up until Dec. 5, when Russian oil was still exported to Europe, it was profitable for Russian oil companies to sell at a low price: they could offload cheap crude to their own refineries and then sell the resulting oil products at full market price in Europe. As a result, he suggested, oil companies avoided taxation, circumvented sanctions and made money trading with Europe.

Once the European embargo came into force, Vakulenko believes a similar story began to unfold in Asia. Based on analysis of public data and conversations with traders, he suggested that Indian buyers were getting Russian oil at a maximum discount of $10 per barrel, rather than the headline $30 to $40 figure. An analyst at a leading investment bank who spoke with The Bell and said he believed Vakulenko. Much of the difference has been pocketed by trading and shipping companies connected to Russian oil majors.

To some extent, Western sanctions have succeeded in making Russian exports less transparent not only for the West but also for the Russian government, Vakulenko told The Bell. “Circumstances have created an enormous rent-capturing opportunity at the expense of Russian state coffers and the European consumer,” said Vakulenko. “The Russian state was deprived of a substantial share of oil revenue.”

The new formula put forward by the Finance Ministry should reduce incentives for oil companies to manipulate prices and oblige them to pay more tax.

Why the world should care

High spending and a fall in revenue is one of the biggest financial challenges facing the Russian government this year. There will be no repeat of the oil-and-gas bonanza of spring 2022, which largely canceled out the early impact of sanctions. Russia’s technocrat officials will have to show ever greater ingenuity and persistence to fill the state’s coffers without stifling the economy. Of course, there is little they can do to change the primary cause of economic uncertainty and rising expenditure — the war in Ukraine.

How North Korea became Russia’s ally

North Korea continues to support Russia almost a year after the Russian invasion of Ukraine. Kim Yo-Jong, sister of the country's leader Kim Jong-un and a senior figure in the country’s ruling Workers’ Party, promised last month that Pyongyang would always “stand in the same trench as the Russian army.” Could we call North Korea an ally of Russia? How is North Korea’s media reporting the war? Is it true that North Korean workers are being sent to occupied eastern Ukraine? The Bell discussed all this with Andrei Lankov, a professor at Seoul’s Kunmin University and one of the world’s leading experts on the secretive “hermit nation.” Here’s what he had to say:

• Russia is engaged in a major conflict with the west and is now guided by a familiar geopolitical principle: the enemy of my enemy is my friend, Lankov said. Pyongyang is susceptible to the same idea, even though a few years ago Russia joined UN sanctions. Generally speaking, the Kremlin’s only concern is North Korea’s nuclear program, which has the potential to establish a dangerous precedent and erode Russia’s status as a nuclear power, according to Lankov.
• Today, Lankov said, North Korea is simply a situational ally for Russia. The relationship between the countries is entirely pragmatic: Moscow can ask Pyongyang for weapons and ammunition (for many years North Korea produced huge quantities of ammunition for Soviet artillery systems), or to recognize annexed territory in Ukraine. In return, Pyongyang can rely on Russian support as a permanent member of the UN Security Council. In May, for example, Russia vetoed further UN sanctions against North Korea.
• North Korea’s newspapers write nothing about the war in Ukraine. Since the start of 2020, the country’s leaders decided news from the outside world should be as brief as possible. Now, though, things could change, according to Lankov. Kim Yo-Jong’s speech was quite unusual as North Korean leaders very rarely make explicit statements about conflicts far from home.
• Earlier this month, there was great excitement over a story that North Korea might send workers to Russian-occupied eastern Ukraine. Lankov feels there is a good chance this story could be true. Traditionally, many North Koreans were willing to pay bribes to get work in Russia because it generates a good income. On the other hand, most likely we are talking about workers already in Russia. Since the start of the pandemic, North Korea has closed its borders. With no international air traffic, it is not possible for a new workforce to reach other countries.
• Some Russian commentators fear Russia could turn into North Korea, but Lankov does not believe this likely. Firstly, the North Korean system emerged from a popular revolution. Russia’s power vertical, by contrast, was developed over a longer period after democratic elections. Secondly, North Korea is a small country with a rigid hierarchy and a population steeped in Confucian principles and reverence for their superiors. Russia is not like that. “The country is too big, too complicated and too diverse,” Lankov said. “If I was looking for an equivalent, I’d be more inclined to look at Iran.”

Why the world should care

Media outlets have reported on growing cooperation between Russia and North Korea in recent months. However, these countries are a long way from any fully-fledged alliance. At the moment, it helps both sides to offer symbolic support to one another against the backdrop of the war in Ukraine and Russia’s international isolation.