Baltika brewery: The Kremlin’s de-privatisation policy

Russia | Mr Putin may deny it, but de-privatisation is definitely taking place. The court-mandated asset seizures of Baltika and Danone in July are not isolated cases. They are part of a broader strategy, impacting the oil and gas sector, infrastructure facilities, enterprises related to the military-industrial complex, the chemical industry, and agriculture. Both Russian and foreign businesses are affected.

As Nikolai Petrov, a Fellow of Chatham House, a thinktank, sees it, “the project is intended to redistribute wealth to a new generation of less powerful oligarchs – and shore up President Putin’s own position after the shock of the Prigozhin mutiny and the failure to prevail in the country’s war on Ukraine.”

Oligarchs are disempowered

In other words, Mr Putin’s cronies are handed over businesses, which they can grow and milk. But ownership and inheritance will be severely curtailed because the assets ultimately belong to the state.

Mr Petrov added that de-privatisation renders private property rights in the country null and void. All property is contingent on an individual’s relationship with Mr Putin.

The return of Mr Bolloyev

Take Taimuraz Bolloyev. Almost two decades after stepping down as president of Russia’s then largest brewer, Baltika, he is back in charge at his former firm. According to the Financial Times (FT), he has set out to restore it to what he considers its 1990s heyday, before its acquisition by Carlsberg.

A friend of Mr Putin, Mr Bolloyev was appointed in July after Russia’s president placed Baltika under “temporary management” by the Federal State Property Agency. This decision left Carlsberg with the title to the shares but with no control of a business that had made up 10 percent of its global revenue.

Baltika beer: free from “foreign additives”

While Carlsberg has yet to get over the loss of its second-largest market, Mr Bolloyev and Baltika’s new management are plotting their new strategy. There are plans to relaunch Baltika 3, a lager first brewed one year after the 1991 collapse of the Soviet Union that now bears Mr Bolloyev’s name on the bottle.

According to the FT, Mr Bolloyev was on Russian state TV, declaring: “My signature — as the author.” Not enough, the beer is being marketed as “free from foreign additives” and made from 100 percent Russian ingredients. The tagline reads: “The reborn taste of 1992.”

Carlsberg’s secret buyer

It has now come to light that Carlsberg’s preferred buyer for Baltika was Arnest, a leading Russian manufacturer of metal packaging and aerosols. According to the Russian news agency Interfax, the Arnest group, which previously bought the assets of the Heineken brewery for a symbolic one euro, was planning to take over the company for more than RUB 70 billion (USD 800 million).

As Brauwelt International had speculated earlier this year, a combination of Carlsberg and Heineken’s assets would have made perfect sense and would have allowed Arnest to become the leading brewer in Russia.

But this summer those plans were overturned. Since Baltika, ranked second-largest brewer, made more profit than third-ranked Heineken, it was attractive for seizure. An insider told the FT: Powerful individuals had lined up for Baltika and had said to Mr Putin, “hey, you should give me this asset”. In the end, Arnest was only allowed to acquire Heineken’s assets.

Mr Bolloyev wanted to buy Baltika

Reportedly, Mr Bolloyev is close to billionaires Yuri and Mikhail Kovalchuk, who are among Putin’s confidants. Per the FT, they had previously signalled their interest in Baltika.

Mr Bolloyev, who unlike the Kovalchuks is not under Western sanctions, was initially reluctant to get involved for fear he might get under sanctions too. Allegedly, he tried to negotiate a purchase of Baltika with Carlsberg. But the Danish deemed his terms “unacceptable”.

Now Mr Bolloyev, who ran Baltika from 1991 to 2004 as his fiefdom, has re-exerted swift control over the company. He has re-hired his former right-hand man, supply chain expert Alexander Dedegkaev, to run operations.

Per the FT, Mr Bolloyev and Mr Dedegkaev have also pledged to bring back regional beer varieties that Carlsberg trimmed and make all Baltika’s beer from Russian hops. How they will manage to do so remains a mystery, as previously the Russian beer industry has imported most of its hops from Europe and the US.

Beer market regulations may be eased

Meanwhile, Russia’s brewers hope that Mr Bolloyev will use his influence on the Kremlin to lobby successfully for the easing of tough alcohol regulation. They are partly responsible for beer consumption having declined since 2008.

The Russian finance ministry has been keen to clarify that the confiscation of Baltika is not to be confused with nationalisation. “This leaves a door open for Moscow to transfer ownership, or to extend the temporary management period and keep companies in limbo – and potentially use the assets as a bargaining tool should there be more seizures of Russian assets in the West,” the FT commented.