Inskoy mine case: what danger command economy presents for the region
The Inskoy mine case in the Kemerovo Region has amply demonstrated the risk regional authorities are exposed to when managing in hands-on mode resources of private enterprises by means of their administrative resources. New case materials made public in the course of the litigation raise questions of efficiency (and permissibility) of the settlement of regional economic problems at the expense of funds of private enterprises.
During the process, the court could hear audio records related to the case over alleged extortion of the controlling interest in Inskoy mine. The recorded telephone conversations have clarified the positions of the parties; especially important details are contained in audio records of conversations between ex-representatives of the regional authorities and Alexander Shchukin. It follows from the records that businesses were engaged in meeting social commitments of the region on a “compulsory voluntary” basis. At the same time, the enterprises whose owners displeased Aman Tuleyev were frequented by inspections of representatives of regulatory authorities, who stopped production for several days.
The Inskoy mine criminal case once again raises the issues, which need to be paid attention by both practitioners and theorists of law enforcement. Where are the limits of corporate social responsibility to the region, and how its amount is to be calculated? What can an enterprise becoming hostage to the administration trying to settle its problems do? RAPSI analyzes new facts, the current situation in Kuzbass, and cites an expert opinion about the recent developments.
Tuleyev’s management approach
The former administration of the Kemerovo Region has closely monitored the situation at enterprises and strived to preclude unrest by raising money to pay wages. Nevertheless, even Kuzbass old-timers could not imagine the extent of compulsion to social responsibility. Alexander Shchukin, who had spent significant funds to help Inskoy mine, to his surprise found himself under serious pressure of the administration after he had refused to invest in and manage the enterprise in multi-billion debt, although he did not demand even reimbursement of his expenses.
Operations of the businessman’s enterprises were stopped by inspectors of Russia’s Federal Environmental, Industrial and Nuclear Supervision Service (Rostekhnadzor), regional media outlets, including the official website of the regional administration, began to criticize Shchukin, recalling certain controversies he had been involved in. The billionaire, who had earlier already spent 200 million rubles (about $3 million at the current exchange rate), part of which sum was transferred to pay wages of workers of the Inskoy mine he did not even own, agreed to send his experts to consult the enterprise and provide it technical assistance if only to avoid pressure on his business.
During the said inspections, Anton Tsygankov, who is currently qualified as a victim and according to whose allegations the defendants have unlawfully wrested out the transfer of a 51% share in Inskoy mine, contacted with Shchukin on work-related issues and discussed with the businessman’s assistant the questions related to the reneging of the shares transfer and restoration of the pre-strike status quo.
Wage arrears problem in Kemerovo Region gets worse
All the developments described above took place when the economic situation in the region was relatively stable.
By now, the situation has changed, and the Kuzbass administration has to combat a protracted crisis but is unable to act in Tuleyev’s style.
In 2019, the price of coal used in metallurgy plummeted twofold, and its sales now cannot compensate production costs. This situation threatens the very existence of many enterprises, whereas bailout thereof will entail irrecoverable debts to workers and bankruptcies. Thus, in December 2019, a financial crisis broke out at Zarechnaya and Alekseyevskaya mines, where some part of employees stopped to go out to work due to wage arrears.
Earlier, these two mines were a part of Zarechnaya coal company, which went bankrupt in 2018. Both mines are local major employers providing in total about 5,000 jobs. As a result, the crisis at these two enterprises affected not only miners, but the regional administration as well; media outlets and the public still wait how it is going to react to the situation.
New administration face complex challenges
For the past 18 months the Kemerovo Region has been headed by Sergey Tsivilev, who uses more legally transparent means with respect to the issues of rescue of enterprises.
Thus, Tsivilev settled the December crisis affecting a wide range of mines, which accumulated wage arrears totaling to 223 million rubles (about $3.5 million), by using VAT reimbursement mechanisms.
“The Governor has taken an unconventional decision. Tsivilev made a number of telephone calls to the heads of tax agencies and the treasury across Siberia. As a result, right in the course of the meeting the funds hit the accounts,” a regional administration statement reads.
However, the question of how long or frequently such a reserve of funds in the regional budget will be available to repay wage arrears remains open.
An alternative way
After the intervention of a prosecutor’s office, on January 23, 2020, Inskoy mine paid the debt to its employees. Seven hundred workers were at last paid 34 million rubles (about $538,000). Even after almost five years since Inskoy mine borrowed large funds to repay its debts, the loss-making enterprise cannot regain its feet; moreover, it continues to accumulate debts, thus making the situation even tenser. Experts believe that it is a logical result of a hardball brand management of the economy, which has exhausted its potential to settle systemic problems at important enterprises.
Alexander Ermolenko, an FBK Legal firm partner, PhD in Law, a member of the Working Group on Anti-Crisis Regulation of Socially Important Businesses at the Moscow office of the Association of Russian Lawyers comments on the situation as follows:
“The central problem of such an approach, which dominates here [in Russia] not only at the regional, but at all levels of government, is its unpredictability. Neither businesses, nor the state can be sure that their interrelations will be sustainable in the long term. In such a situation, all things “allowed” and “not allowed” are becoming very personalized; it is an archaic way to regulate social relations: there are no common rules, but only arrangements everyone makes with everybody else. At the same time, there is no place for stability, for confidence about the future; everyone understands that and determines one’s course of actions accordingly: businesses hide money, the state opens criminal cases. As a result, it is a “war by everybody against everybody else.” This situation must give way to the law, common rules for everybody and the supremacy of these rules.”