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. Last Updated: 07/27/2016

Russia's 'Biznes' Candidate

Vladimir Bryntsalov will not win the June 16 presidential elections. He won't even come close. According to polls, he will be lucky to get 1 percent of the vote.

But although he may fall short of Ross Perot of the United States or Italy's Silvio Berlusconi in electoral success, in many ways he is very like them. He too is a self-made millionaire businessman who is now branching out into politics.

As such, he stands out among the 10 other presidential candidates who are almost all ex-Soviet bureaucrats.

Bryntsalov, 49, is from another class: He is the quintessential "New Russian" businessman, a mixture of gangster and exuberant entrepreneur. He is delighted to show you his Mercedes, his expensive wife and the gun he carries at his hip but becomes rather vague when it comes to just how he went from Soviet rags to New Russian riches.

It is hard to assess the size of Bryntsalov's wealth. In a recent interview with The Moscow Times, he said that his company, Ferane, has gross sales of 3 trillion rubles ($595 million). His wife (his second, "but not his last," Reuters has quoted him as saying) said in a recent television interview that she receives $18,000 a month for housekeeping.

Whatever the precise figure, Bryntsalov's business empire clearly turns over enough cash to allow him to pay for all the baubles of new Russian wealth and for a high-profile election campaign which is doomed to fail and has little apparent purpose other than gratifying his own ego.

The answer to the question of exactly how Bryntsalov came by his wealth has something to do with pharmaceuticals, something to do with the vodka trade and a lot to do with the reckless opportunism it took to make a fortune between 1990 and 1996 in Russia.

Bryntsalov said in a recent interview that he rose from humble roots in Stavropol in southern Russia, took over a struggling Soviet state-owned pharmaceutical factory and turned it into a modern company -- Ferane -- a market leader in the production and distribution of medicines.

By some accounts, Bryntsalov started out on the capitalist path early in life.

He was thrown out of the Communist party in 1979 for "petty-bourgeois tendencies" because he built a three-story private house.

But Bryntsalov says he started out in real business in the perestroika period, organizing a beekeeping cooperative to produce honey, which, he said, by 1988 had helped him earn over $800,000.

This put him on the gray side of the law. It was still the early days of perestroika and the Soviet system was in place; accumulating wealth, trading, and engaging in private enterprise were still illegal.

Not surprisingly, Bryntsalov is light on the details as to how he was able to work in private business under communism. "I received special permission," he said.

After his phenomenal success bee-keeping in the steppes, Bryntsalov said that he quickly moved to Moscow and became commercial director of the Kirov Pharmaceutical Factory. This too must have been lucrative: In 1992, he says, he bought the company outright, paying $60 million in cash.

Employees confirm that Bryntsalov bought up all the shares they were given in the Kirov plant at the start of privatization.

Bryntsalov said he owns 97 percent of the company, with the remaining 3 percent is owned by "relatives."

Today, Bryntsalov has renamed the company Ferane, its pre-revolutionary name. He said that it produces and distributes more than 800 types of pharmaceutical products, mostly antibiotics, with a distribution system that stretches across Russia and the countries of the former Soviet Union, selling medicine as far as Latin America.

Now that he is seeking political respectability, the role of public-spirited pharmaceuticals manufacturer is one that Bryntsalov is keen to cultivate.

But Sergei Markov, senior analyst at the Carnegie Endowment's Moscow Center, said Bryntsalov's rise to fortune is better explained another way.

"Bryntsalov had a number of shadowy businesses [in Stavropol], from which he made most of his money," he said.

Chief among these was the production of spirits.

When Bryntsalov came to Ferane in Moscow, Markov said, "he used Ferane's pharmaceutical factories to produce and bottle vodka." After Bryntsalov was elected a Duma deputy last December, his nickname was "the moonshiner."

Markov said in so doing, Bryntsalov was not only able to tap into the highly profitable market for vodka, but was able to take advantage of millions of dollars in tax breaks that the government grants to pharmaceutical companies.

Markov said Bryntsalov is probably focusing more now on producing pharmaceutical products, as the profitability of this sector is currently rising. "The time when one could make big profits in vodka has already passed," he said.

Markov's evaluation of Ferane as primarily a vodka producer was supported by a researcher with a Western pharmaceutical company in Moscow, who declined to give his name. "A few years ago they probably made much more money on alcohol than on medicine," he said.

Vladimir Bezborodov, director of Ferane's commercial trade department, acknowledged that Ferane produces vodka, although he confirmed Markov's view that Ferane would probably get out of the vodka business altogether in the next few years. "In my view there are no prospects in this area," he said.

But Bezborodov downplayed the size of the liquor trade in Ferane's business.

He said the vodka -- bottled under the Russkaya, Stolichnaya and Ferane labels -- and other side businesses separate from pharmaceuticals make up only "3 to 6 percent" of the firm's total turnover.

Somewhat contradictorily, Andrei Mikhailov, head of Ferane's sales department, said that the company currently has a 4 percent share of the Russian vodka market in terms of volume.

Taking an estimate by Rosalko, a vodka industry group, that total vodka sales in Russia are 2.86 billion liters and taking the average cost of a 1 liter bottle of vodka at 16,000 rubles, that would mean that Ferane would have a share of the market worth about $200 million at retail level. Rather more than 3 to 6 percent of its turnover.

Yet, not everyone accepts the theory of Bryntsalov as primarily a vodka bootlegger. Andrei Fedotov, managing director of the advertising firm Russian Public Relations, which researches the alcoholic beverage industry, said that Ferane, to the contrary, had only recently begun to produce vodka in significant quantities and was always primarily a pharmaceuticals business.

Of course, the life of a New Russian businessman is never easy.

The Moscow Tax Police said last Thursday that Ferane has not paid 40 billion rubles ($7.95 million) in back taxes.

A tax official stated that Bryntsalov has physically resisted complying with the government and could face criminal charges.

According to an article published recently in Segodnya, which cited sources at the Russian tax inspectorate, the case concerned tax benefits on depreciation granted in the early 1990s.

But Ferane's Bezborodov said that the company only received tax breaks that any pharmaceutical company is entitled to receive under Russian law. "From the government we practically don't receive any tax breaks," he said. "This is just a part of the election campaign."

A visit to Ferane's main factory in southern Moscow attested to the success the company has achieved in recent years.

The headquarters, which serves as the central factory, executive headquarters and Bryntsalov's election headquarters all in one, teems with activity. Caravans of Mercedes pass through the central gates with a rapidity befitting the motorcade of a visiting head of state. Four security guards stand outside to regulate the flow, armed with pistols and shotguns.

Once inside, the compound has a protected and antiseptic quality far removed from the dust and pollution of the Nagatkinskaya region of south Moscow just over the compound's walls.

Visitors are greeted by lush grass, at least by Moscow standards, and even an outdoor cafe area surrounded by plastic foliage. The factory employees, who Bryntsalov said receive an average salary of $800 a month, almost six times Russia's national average, are provided with a food store and sports facility on the premises.

This is Bryntsalov's fiefdom, and like a feudal lord he lives with his wife and two children prominently on the grounds, on the third floor on one of the central buildings.

His loud-mouthed oafish style as a politician translates to a tougher commanding persona on the job. One afternoon, a women in her 40s approached Bryntsalov as he was making his way to his office, explaining that she was out of work and begging him for a job at his company.

"I don't have a job for you, lady," bellowed a haggard and unshaven Bryntsalov, having just driven his two children around in one of his Mercedes for the benefit of a U.S. television crew. "If you want a job, go to my campaign office. Perhaps you can go out and post leaflets for us."

Officially, Bryntsalov has severed his connections with the company in keeping with a Russian law that forbids Duma members to hold jobs in the private sector.

"After being elected [last December] to the Duma, [Bryntsalov] ceded his powers to the union of directors," explained Ferane's Bezborodov. Bryntsalov said he receives no salary from the company.

However, Bryntsalov has not vacated his apartment. He drives a company Mercedes at his leisure and rests in company dachas. And he still works in his company office.

One employee, who declined to be named, hinted that Bryntsalov is still very much in charge. "In reality we listen to his opinions rather carefully," the employee said.

The Ferane factory is Bryntsalov's showcase. The work force, he says, has expanded from 5,000 when he first came to the factory to its current 15,000.

Annual turnover, he said, amounts to 3 trillion rubles ($595 million).

Analysts agree that the factory has turned around after being in dire financial straits in the early 90s.

Under Comecon planning, Russia did not support its pharmaceutical industry significantly, preferring to rely on imports from socialist Eastern European countries.

Bryntsalov is, however, rather extravagant in the claims he makes about his company.

He told The Moscow Times that the company has 14 factories spread throughout Russia producing and packaging medicine, and there are another 29 devoted to "other areas of production."

But Bezborodov said the picture is more modest: The company in fact has seven factories, four devoted to the production and packaging of medicine, and three devoted to the production of other goods, namely vodka and porcelain.

He said that Ferane markets 800 different types of medicine, predominantly antibiotics, but of those the company produces only 250 itself and the remainder are bought abroad and then packaged by the company.

Ferane claims it dominates the pharmaceutical market. One director told The Moscow Times that 45 percent of all Russian-produced medicines on the market are Ferane products. He said Ferane has 20 percent of the total market, including imports.

All of this may be a slight exaggeration, but there is little doubt that it is well-placed within the Russian pharmaceuticals business.

Charbel Ackermann, vice president in Moscow of management consultants The Boston Consulting Group, which has just carried out a full-scale survey of the Russian pharmaceutical industry, confirmed that Ferane is the leading Russian firm in the industry. BCG estimated Ferane's annual pharmaceutical sales at just over $50 million -- less than one-tenth of what Bryntsalov claimed as his company's total turnover.

This is still a good share of the relatively small Russian market for pharmaceuticals, worth $2.7 billion a year, according to BCG figures.

Moreover, the market has expanded at an annual rate of 33 percent in dollar terms since 1993.

Currently, Russia spends $20 per capita on medicine, a figure BCG expects to rise to $35 by the end of the century.

However, Ferane and other Russian firms will face tougher competition from Western name-brand companies, which are making deeper inroads into the market.

Ackermann said that their current 17 percent market share has risen from 10 percent in 1993, and he expects this to increase to over 30 percent by the end of the century. Ackermann expects a shake-out in the Russian pharmaceuticals business over the next few years that will favor the larger firms such as Ferane.

"While Russian medicines are cheaper, over time they are likely to be at cost levels that are comparable to those of their East European competitors," he said, "particularly because the Russian active ingredient industry is not very competitive in comparison with those in China, India and Eastern Europe."

Ackermann said the chief task for Russian drug producers now, as the market becomes flooded with imported name-brands, is to rationalize their operations by focusing on producing generic drugs for domestic consumption.

Alexander Polstyanov, Ferane's technical director, is confident.

"I do not see one company, realistically, that can compete with us in terms of production capacity and quality."

Polstyanov said that Ferane is concentrating on packaging imported active ingredients into tablets or capsule form, thereby providing Russian consumers with a cheaper alternative to Western imports.