Russia’s economic diplomacy
RUSSIA’S UAZ Automotive Factory has set up a joint venture
with an Indian company to assemble famous Ural off-road trucks and
buses in West Bengal; two Russian power firms tied up with India’s
Soma to build a hydropower station in Arunachal Pradesh; Silovye
Mashiny corporation signed a contract to supply Russian electric
turbines to NTPC (National Thermal Power Corporation).
These are but a few recent examples of growing interest Russian
business takes in Indian and other foreign markets.
Encouraged by Russia’s re-emergence as a global political player and
boosted by five straight years of economic growth after a decade of
decline, captains of Russian business have entered the path of
The Norilsk Nickel giant last month laid out $1.16 billion to buy a 20
per cent stake in South African gold miner, Gold Fields, which has 4.3
million ounces of annual gold production and 84 million ounces of
mineral reserves. A month earlier, Tatarstan’s Tatneft oil major
snapped up Turkey’s Tupras, which controls 87 per cent of the
country’s refining capacity, for $1.3 billion.
More investment projects are in the pipeline. Russia’s natural gas
monopoly, Gazprom, has teamed up with GAIL India Ltd. to develop
offshore gas fields in the Bengal basin, the Russian premium telecom
corporation, Sistema-Telecom, is ready to sink $1 billion in Indian
mobile telephone industry, while the aluminium giant, RusAl, is
waiting to pounce on the National Aluminium Company (NALCO) when its
disinvestment plan is reactivated.
The President, Vladimir Putin, told the nation that Russia was still
facing a win-or-die battle it had fought in the Cold War, even if the
rules of the game had changed.
“There is a tough, competitive battle going on in the world,”
Mr. Putin told the country in his annual teleconference in
December. “As different from the past, this battle has moved from the
realm of military conflict to economic competition.” Accordingly,
Mr. Putin has recast Russia’s foreign policy priorities, charging the
Foreign Ministry with the overriding task of helping Russian business
abroad. The move has won the praise of Russian businessmen.
“I think there is a gradual revolution taking place in foreign
economic relations,” said Mr. Kakha Bendukidze, co-owner of Silovye
Mashiny, which won the electric turbine tender in India earlier this
year. “There is a growing recognition in the Foreign Ministry and in
the Economic Development and Trade Ministry that they need to support
Russian businesses abroad, including attempts to make investments
For the first time in more than a decade the Russian Government has
set aside a modest $500 million in state guarantees in this year’s
budget to support exports. In a more significant move, a new law will
come into force this summer that simplifies rules for transferring
cash out of the country for investment purposes.
The first stage in Mr. Putin’s global expansion plan is to win back
the former Soviet states. As the U.S.-led NATO moves troops to
Russia’s borders, Moscow is pushing to reassert its domination in
neighbouring markets. It wields the most powerful weapon at its
disposal, energy, being either the sole supplier of oil and gas to
ex-Soviet republics or providing the only route for their energy
exports to outside markets.
The state-controlled electricity monopoly, United Energy Systems
(UES), has brought under control four-fifths of Armenia’s
hydroelectric power capacities and bought up most of Georgia’s energy
facilities. The UES has acquired stakes in electricity assets in
Kazakhstan, is about to buy major stakes in 10 of the 27 Ukrainian
energy companies, and plans to participate in the disinvestment of
power assets in Moldova. In Kyrgyzstan, UES has set up a joint venture
with two local companies to build a cascade of two hydropower stations
on the Naryn River in the mountains that will meet the electricity
needs of Kyrgyzstan and other Central Asian states.
“We have very aggressive plans that cover most countries of the CIS
(Commonwealth of Independent States),” the UES chief , Anatoly
Chubais, said in a recent interview.
Russia’s Gazprom controls practically all natural gas flows to and
from former Soviet republics. Even energy-rich Azerbaijan imports from
Russia over half of its gas needs to the tune of 4.5 billion cubic
metres. Earlier this month, Gazprom signed a deal with Uzbekistan to
develop a major gas field in that Central Asian republic that could
entail an investment of $1.4 billion in Uzbekistan’s energy sector. In
January, Russia’s oil major, Lukoil, signed an accord for the
investment of $3 billion into joint development of Kazakhstan’s oil
and gas fields in northern Caspian.
Russia’s aggressive economic expansion is reflected in growing mutual
trade with the Commonwealth of Independent States (CIS), which unites
12 out of 15 former Soviet states. Russian trade with CIS registered a
30 per cent hike last year, increasing at a higher pace than with
other countries. This helps Russia resist Western attempts to weaken
its positions in the former Soviet Union.
Earlier this month, Kazakhstan’s Ambassador to Russia said his country
planned to increase oil exports to and across Russia from the current
20 million tons a year to 250 million tons by 2020. In other words,
Kazakhstan will pump all its oil exports through Russian pipes, making
the U.S.-pushed $3.6-billion Baku-Tbilisi-Ceyhan (BTC) pipeline a
profit-losing project, as Azerbaijan admittedly does not have nearly
enough oil to fill the pipe.
Russia’s Minister for Industry and Energy, Viktor Khristenko,
described the Russia-driven integration of energy systems in the
former Soviet states as “an instrument of solving political issues in
Ukraine’s political elites may have declared a strategic choice in
favour of Europe, but the country’s economic interests push it towards
Russia. According to some information, Russian investors control about
80 per cent of Ukraine’s oil refineries, practically all non-ferrous
industry, a quarter of privatised electricity companies, half of cell
phone operators and 30 per cent of dairies. By the time Ukraine is
ready to join NATO and the European Union, most of its industry will
belong to Russian business.
Russian expansion into neighbouring economies has been a major factor
behind Moscow’s successful efforts to push reintegration plans in the
former Soviet Union. Even Ukraine, which had long rejected these
plans, signed last September a common market pact with Russia,
Kazakhstan and Belarus which envisions a customs union, free movement
of goods, capital and labour, and unification of tax, monetary and
foreign trade policies.
Winning commanding heights in former Soviet economies gives Russia a
stepping-stone to expansion beyond the former Soviet borders.
“We are not going to confine our expansion to the CIS,” Mr. Chubais
said last week. Having restored unified electricity grids with the
former Soviet republics, the company now plans to buy assets and
export electricity to a total of 12 countries from Norway in the north
to Slovakia in the west, Iran in the south, and China in the east.
Energy is the driving motor of Russian expansion. LUKoil, Russia’s
second biggest oil producer, won the rights in January to develop a
potentially huge gas field in Saudi Arabia in a tie-up with Saudi
Aramco. The deal strengthened newly emerging links between the world’s
two biggest oil producers that could give Russia greater leverage in
global energy markets. Gazprom, which is the major supplier of natural
gas to Europe, is in talks with Ukraine, Germany, France and Italy to
set up a gas transportation consortium that will help consolidate
Europe’s dependence on Russian energy. The energy tool has helped
Russia win important trade concessions from the E.U. ahead of its
expansion into Eastern Europe next week.
As one analyst put it, “In the old days of the former Soviet Union,
Russia’s political clout was measured by the 14,000 nuclear missiles
it had pointing west; now it’s measured by the pipelines it has
Russian business has even made first inroads in the
U.S. market. LUKoil has bought 2,100 gas filling stations in the East
Coast and plans to bring up the number to 3,000 stations, while the
steel giant, Severstal, has purchased the Michigan-based Rouge
Industries for $286 million.
A World Bank report released earlier this month concluded that
Russia’s 23 largest business groups control more than a third of its
industry. This is an upshot of Boris Yeltsin’s corruption-ridden
privatisation deals of the 1990s.
However, rather than reverse privatisation or break up monopoly
Putin has instead used them as locomotives of Russia’s expansion to
global markets under government control. Oversees acquisitions may
eventually transform Gazprom, LUKoil, Norilsk Nickel and other Russian
industry tycoons into multinational corporations. This fits into
Mr. Putin’s strategy of building up Russia’s economic clout globally
and in the former Soviet Union, and convert it to political clout.
From: Emil Lazarian | Ararat NewsPress