TheChek News Flow

Azerbaijan snubs EU after Armenian enclave takeover

President Ilham Aliyev cancels plans to attend a European summit where he was due to meet the Armenian PM

Azerbaijan’s president Ilham Aliyev has cancelled plans to attend a summit in Spain this week, skipping an anticipated meeting with the Armenian premier there and further snubbing the EU and its peacemaking efforts in the Caucasus region.

Aliyev was expected to meet the Armenian prime minister Nikol Pashinyan on Thursday for the first time since Baku launched a blitz assault in September and retook the breakaway enclave of Nagorno-Karabakh, marking a historic defeat of its ethnic Armenian population, which has since fled the region.

The 24-hour war shook Armenia and raised questions about the future of the peace process between it and longtime enemy Azerbaijan, which had been taking place across multiple tracks in Moscow, Washington and Brussels.

Thursday’s meeting, which was due to take place at the European Political Community summit in Granada, was cancelled at the last minute, Armenia’s leader said.

“We’ve been confirming our visit to Granada until the very last moment, even today,” Pashinyan said. “We believed that there was a chance to sign a document of crucial significance. We were assessing that likelihood very high up until this morning.”

The Azerbaijani state press agency said on Wednesday that Aliyev had refused to attend the summit due to the “anti-Azerbaijani atmosphere” of the format. The talks were due to involve France, Germany and the EU.

“If the former trilateral format of EU-Azerbaijan-Armenia is revived, Azerbaijan may take part in the meeting,” the state news agency summarised. “Any format in which France participates is unacceptable for Azerbaijan.”

It listed Baku’s complaints towards France, including “pro-Armenian statements by French officials”, the visit to Armenia of France’s foreign minister and plans for further military co-operation.

Turkish president Recep Tayyip Erdoğan will also skip the summit, according to the government of Turkey, a close ally of Azerbaijan. Local media cited an alleged cold as the reason for the Turkish president’s change of plans.

An EU official confirmed that neither Aliyev nor Erdoğan would be present.

EU council president Charles Michel and the leaders of France and Germany were planning to use the Granada meeting to threaten Aliyev with potential retaliation — including possible sanctions or a downgrading of the EU’s trade and investment relationship with Azerbaijan — if the situation in Karabakh “deteriorates”, bloc diplomats said.

Over 100,000 Armenians, nearly the entire population of Nagorno-Karabakh, have fled the enclave in recent weeks, for fear of retaliation from Azerbaijani authorities.

“I think this is perhaps the right moment to have a look at how we can offer practical support to Armenia in very tangible and telling ways,” a second EU official said. 

Baltika is challenging Danish brewer’s attempt to terminate licence agreements for international labels

Carlsberg is gearing up for a legal fight with its Russian business Baltika over the subsidiary’s right to sell its international brands as the Danish brewer enters the next phase of its tortuous exit from the country. 

On Tuesday Carlsberg said it had chosen to write down the entire value of its Russian business, after rejecting a deal to sell the subsidiary to its new directors, who were installed after Moscow seized Baltika in July. 

In a blow to Baltika’s new management, the brewer also said it had terminated the licence agreements that allow it to sell international Carlsberg brands such as Tuborg and Kronenbourg in the country. Carlsberg’s international brands make up approximately 40 per cent of Baltika’s value.

Baltika last month applied to the St Petersburg Arbitration Court asking it to prohibit Carlsberg from initiating legal proceedings against the company in a Danish court “for termination of the licence agreement”, according to filings from the Russian courts database. The court set a hearing for February 2024.

On the same day, September 14, Baltika also asked the court to prohibit the Russian patent authority Rospatent from making any changes to its trademarks concerning Tuborg, Kronenbourg, Seth & Riley’s Garage, Holsten and LAV.

A spokesperson for Carlsberg said: “We are aware of the case in Russia but we have not received any formal notice by the Russian courts.” They added: “We will of course assess the information when we receive it.”

Baltika declined to comment.

Alongside French food giant Danone, Carlsberg’s Baltika was seized by state authorities in July and placed under “temporary management”. Baltika’s former director and a close friend of Vladimir Putin, Taimuraz Bolloev, returned to take over the management of the breweries.

Carlsberg said on Tuesday it had come to its decision to write down the business due to the “unacceptable terms” of the deal, which the company felt would “justify the illegitimate takeover of our business in Russia”.

Western companies trying to sell their businesses in Russia have had to jump through multiple regulatory hoops, agree to strict terms and have little hope of extracting much value from a potential deal. 

Carlsberg was on the verge of completing a sale to Arnest, a leading Russian manufacturer of metal packaging and aerosols, when it was seized. 

The seizure “shows the unpredictability of this country — politics above the law”, said a person briefed on the matter. That Carlsberg and Danone were seized shortly after warlord Yevgeny Prigozhin’s failed mutiny in late June “was no coincidence”, the person added. “Friends rewarded. And a strong signal sent: don’t try to leave Russia no matter how chaotic it all seems. Then you lose it all.”

In August Carlsberg’s competitor Heineken agreed a deal to sell to Arnest at a loss of €300mn. To secure approval of the transaction, the company said it had agreed a three-year licence for “some smaller regional brands”. 

“While it took much longer than we had hoped, this transaction secures the livelihoods of our employees and allows us to exit the country in a responsible manner,” Heineken’s chief executive Dolf van den Brink said at the time.

The CEO of the freight-forwarding giant says moving production out of China reduces risks but comes with complications

Companies are making big changes to their supply chains in the wake of the Covid pandemic and rising tensions between the U.S. and China, and logistics businesses are following them to new destinations as they try to clear the hurdles to new manufacturing and distribution strategies.

Marie-Christine Lombard, chief executive of France-based freight-forwarder Geodis, says moving production out of China and closer to markets in Europe and North America isn’t simple. Lombard spoke with The Wall Street Journal about the pressures companies face as they pursue nearshoring and reshoring goals while also trying to reduce carbon emissions.

A podcast of the full interview is available here. Edited excerpts are below.

WSJ: What are the biggest supply-chain lessons companies learned in the wake of the pandemic?

Lombard: The multinationals and everybody else in the chain are looking for less dependency on China. But on top of the pandemic, you have climate change and the imperative to reduce CO2 emissions. To do that, you need to shorten the distances products are traveling. That means more manufacturing closer to consumer markets, which is a big change because all the companies had gone to China to lower production costs.

I don’t know if it’s a good thing, but the crisis has created a focus on supply chain.

Usually nobody was talking about supply chain and how complex that was and the risk of disruption and so on. Today, it’s on everybody’s agenda. It has become a focus. How is our supply chain resilient? Is it sufficiently resilient? Is it dependent on countries, and so on. So yes, there is complexity to move to a more resilient supply-chain system. But once the move’s done, I think it would actually be possible to simplify the situation. It’s the transition that is always complicated.

WSJ: What are the main challenges companies face when they try to bring production to Europe and North America?

Lombard: You need to find the right manufacturers and you need to have raw materials that are close to manufacturing plants. It’s easier said than done because not only do you need to take into account the cost of labor and the capabilities of finding the right raw materials, but you also need to have cheap energy.

What we see today because of the Ukraine war and many other geopolitical tensions is that energy costs have gone up tremendously. If energy costs are going up, you have difficulty attracting back manufacturing.

WSJ: Which countries are companies looking to as an alternative to China?

Lombard: It started before Covid, to be honest. And the pandemic has accelerated the thought. Vietnam was already on the radar. And Vietnam is indeed a potential alternative to China.

Everybody’s talking about India as a potential alternative, but it is not so clear that India can effectively replace China because the transport infrastructure within the country is not very good.

You have to check many boxes. You need to have qualified labor in manufacturing. And you need to have quite big infrastructure, be it ports, airports and road access. And it’s not easy to find this. So India has been looked at by many clients, but no major moves have been made yet.

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Lombard: Transport is changing. As manufacturing moves closer to consumer markets, freight is moving over shorter distances—over land, by road. And if you want to be green, that means investing in green trucks and that’s where the equation becomes even more complex. If you go for a very small van, then most likely you will go for electric vehicles. If you go for big trucks, then how do you make those green? Is it hydrogen? Is it electric? Is it natural gas?

It has to be clean, but it has to be affordable as well.

WSJ: Will some companies look at the complexities of changing their supply chains and decide they’d prefer to go back to relying on a single country like China?

Lombard: The world is becoming more complex because now you see more trade barriers and geopolitical risks. Moving to a more resilient supply-chain system adds complexity. But once the move is done, I think it will simplify the situation.

So I would say actually for us as a logistics company, more complexity is good. Because we are providing solutions to match the dilemmas for our customers, and we are everywhere.

Oligarchs are losing out as Putin courts a new class of loyal asset owners

Russia’s war in Ukraine has redrawn the old deal, driving state-led seizures of lucrative enterprises

Russian president Vladimir Putin’s recent assurances that “there will be no de-privatisation” are as mendacious as his repeated promises not to invade Ukraine. The authorities have moved to seize control of 17 large enterprises this year alone, according to Ilya Shumanov, the former head of Transparency International Russia.

This is not an attempt by some brazen individuals in Russia to line their pockets. It is part of Putin’s effort to redistribute property from people seen as insufficiently loyal to the Kremlin and create a new class of asset owners who owe their fortunes to the president and his inner circle. Members of this new elite, mostly the siloviki (security services) and their business partners, will be the true winners of the Ukraine war — and a bedrock of the regime’s stability. Putin is not getting any younger, and this group will allow his system to reinvent itself even after he departs the political scene.

Towards the end of Putin’s first presidential term in 2004, a formula for peaceful coexistence was forged between the Kremlin and oligarchs who had made their fortunes in murky circumstances after the Soviet Union’s collapse. The state allowed the oligarchs to retain assets accumulated in the 1990s and continue to thrive in exchange for strict non-interference in politics. The oligarchs largely accepted this formula, while the 2003 imprisonment of oil tycoon Mikhail Khodorkovsky demonstrated what would happen to those who disagreed. Thereafter the formula worked relatively well for both sides: Putin amassed complete control over Russian politics, while the oligarchs kept their assets and increased their fortunes thanks to high commodity prices.

The Kremlin was gradually able to impose additional financial demands on oligarchs — labelled “social responsibility” — as a demonstration of loyalty, but the business elite weren’t unhappy. They had learnt how to make money from lucrative state contracts and were assured that, should a disaster such as the 2008 global credit crunch hit them, state banks would help them out. After all, the Kremlin needed the oligarchs too. With their carefully cultivated networks in the west, they were an indispensable tool for Russia Inc, which still wanted to make money as part of the global economy.

Putin’s invasion of Ukraine has completely redrawn the deal with the oligarchs. The August lawsuit of a Russian court to nationalise a company owned by Andrey Melnichenko, one of Russia’s richest men, is the most illustrative case. Melnichenko is under EU sanctions and doesn’t unequivocally condemn the war. Still, even this may be seen as disloyalty in the current environment, and claims by the exiled Russian banker Oleg Tinkov that Melnichenko “hates Putin” (denied by Melnichenko) may have triggered retribution.

Melnichenko is not alone. Last month, a court in Russia nationalised Metafrax Chemical, a large methanol producer. Prosecutors claimed that the 1992 privatisation deal had “undermined Russia’s economic sovereignty and defence capacity” — words increasingly used in Russia to attack opponents. For some, the war ravaging Ukraine is a convenient pretext to nullify prewar agreements and go after lucrative assets. The de-privatisation campaign obviously includes plenty of opportunism, but the Kremlin’s guiding hand is also visible. As early as January, Putin had identified the reassertion of state control over strategic enterprises as a priority for the prosecutor-general’s office.

Previously, Russian oligarchs believed that being under western sanctions offered a form of protection from extortion at home. The Melnichenko case shows that is no longer true. In fact, international sanctions make the oligarchs increasingly useless for the Kremlin as tools for business abroad. Still, there is little to suggest that any of them will turn soon against Putin. Their ability to influence power struggles has diminished.

Western investors such as Carlsberg and Danone were the first to feel the pain of Russia’s new legal environment. Potential investors from Asia and the Gulf in distressed Russian assets, whom the Kremlin is trying to court, should also take note. As for Russians themselves, the Pandora’s box of redistribution opened by Putin’s war won’t just hit the oligarchs, but will ultimately come back to bite the new beneficiaries. The foundations of property rights in Russia, which were fragile long before the war, will become even shakier with the questionable new court rulings.