Opinion: State Control over Lock, Stock & Barrel (Russia, oil, ambitions)

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2//Moscow Times Online, Russia Monday, February 14, 2005. Issue 3105. Page 8.

http://www.themoscowtimes.com/stories/2005/02/14/006.html



OPINION: STATE CONTROL OVER LOCK, STOCK AND BARREL

By Christopher Weafer

Christopher Weafer, chief analyst at Alfa Bank, contributed this comment to The Moscow Times.



The recent announcements that Russia intends to exclude companies or groups that are not majority Russian-owned from bidding for natural resource development licenses, together with the plan to prioritize the building of a $15 billion, 4,200-kilometer pipeline to Nakhodka on the Pacific, do not make great economic sense. But as mechanisms to further government control over the country's most important industry and to use that control to further its geopolitical ambitions, they make perfect sense.



Over the past year, the state has moved to restore greater direct and regulatory control over the oil and gas industry. Officials intend not only to use greater export volumes of oil and gas to encourage GDP growth, but also to push for fast-track integration into the global economy. More oil exports will also mean broader geopolitical gains, including a possible push for WTO entry by the end of this year and for more results from Russia's upcoming chairmanship of the G8 in 2006.



(SNIP)


Without a doubt, Putin's government was fortunate to come to power just as the world was about to experience a paradigm shift in the sustainable average price of oil and right when the major consumer countries embarked on efforts to secure a better balance in future supplies. Oil and gas have proven a very reliable route to economic and geo-political health. Putin is a second-term president, but he heads a first-term power structure. The people behind this power structure cannot afford to lose much more public support, if their vision of a modern Russia is to be sustained beyond 2008. Changing a proven economic model, though based on risky high commodity prices, is clearly not an option for reasons of both domestic and international expediency. Hence, the main reform initiatives envisaged by Gref's plan, namely administrative reforms and growth incentives for small and medium-sized business, are destined to sit on the shelf for at least several more years.



The need to restore state control over this critical lynchpin of the economy and international policy goes a long way to explain such events as the Yukos/Group Menatep case and the government's desire to consolidate ownership and control over the energy sector under one holding, Gazprom. Of course, an unfavorable ruling by a Texas court may delay the creation of this national energy giant. However, it will not derail the goal of setting up Russia's rival to Saudi Arabia's Aramco, probably by the end of Putin's presidency.



A state industrial policy for developing the oil and gas industry is already emerging. It resembles a sort of macro central planning, and the Yukos case, along with the proposed Gazprom-Rosneft merger, was the mechanism to consolidate the state's direct control.


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