Posted on 04/21/2005 5:51:05 PM PDT by Tailgunner Joe
THE KREMLIN will receive three guests this week. The first supplicant, Condoleeza Rice, the US Secretary of State, might not wish to be so described. Her style is not to bend the knee, and her host, Sergei Lavrov, the Russian Foreign Minister, will have his ear bent about democracy and the virtues of the open society.
José Manuel Barroso, the EU President, will hector less and try to engage President Putin in conversation about trade, security and the question of Russias near abroad, the former Soviet republics which are described less imperially in Brussels as the common neighbourhood.
Finally, Lord Browne of Madingley, BPs chief executive, will listen attentively to the Russian President. If the Secretary of State is in Moscow to set out the rules, as America sees them, the Briton is in Russia to find out what the rules are. Of the three visitors, Lord Browne has the most to lose if the interview goes less than well, so he will say little, listen more and avoid mentioning the word tax.
Russias confusing rule book has been a problem for businesses but Kremlin policy is beginning to become a bit clearer to those who pay attention.
It became clearer even yesterday, as a Moscow court impounded Samaraneftegaz and Tomskneft, the remaining two production units of Yukos, the oil company that was once a brazen vehicle for the dissenting ambitions of Mikhail Khodorkovsky.
Tax is the weapon with which the Yukos boss and his company were destroyed but it was a weapon, not a policy. Other companies are being pursued with tax claims, notably TNK-BP, which has received an $800 million (£420 million) demand. Yet Sibneft, Roman Abramovichs company, had its billion-dollar bill reduced to $300 million last week, a sign that supplicants may be treated with leniency.
Yukos tells us what President Putin dislikes: businessmen wielding too much power and influence in sensitive areas. We know what angers the President but what does he want?
A signal came from Germay this month when BASF, the chemical group, did an asset swap with Gazprom. BASF got a half share of a large Russian gasfield and in return Gazprom raised from 35 to 50 per cent its interest in BASFs gas pipeline network. It was important enough for President Putin to attend the flag-waving and clasp Chancellor Schröder by the hand. There was also a prize for Siemens, which is to build high-speed trains in Russia, and rumours are being floated in Moscow that DaimlerChrysler will assemble cars in Russia, a significant challenge to Russias own carmakers.
This president is not averse to foreign investment but he is telling us that energy is special. Foreign-controlled companies are to be barred from the most important oil and gas deposits, while Gazprom, soon to be under state majority ownership, will control all significant gas development. This is more than nationalism. Many developing countries seek to preserve the ownership of subsoil rights for the nation or national companies. Yukos and its principal shareholder are both Russians, but where Yukos offended was in its attempt to manipulate national energy strategy.
Energy is special because it is the only powerful political lever left in the Russian armoury post-Cold War. The near abroad states are clamouring to tear down their borders and join the European Union. A clumsy attempt to steal the Ukrainian election was an embarrassment to Moscow but Europe and America continue to pay tribute to the Kremlin. Russias importance lies not in its weapons or even its geography but in its energy. Russia is abundant in oil and gas while Europe and America are short.
Germany made its pitch well, enticing Gazprom with the promise of partnership, a door into European markets and a pipeline through the Baltic. Meanwhile, Chinese energy diplomacy has failed, a big disappointment to BP, which hoped to pipe Siberian gas to Chinese power stations. Lord Browne believes a deal can still be done, but Gazprom is demanding huge concessions, even larger than the price paid by BASF for access to Russian gas.
We delude ourselves that gas is about markets, a simple equation of willing buyer and willing seller, an economics lesson that Ms Rice would happily provide. President Putin does not see it that way. He knows it is a scarce resource, subject to power, patronage and spheres of influence. With gas, the President has something everyone wants. Russias near abroad could extend very far indeed.
The 'near abroad' guys are supplicants because they are buying on credit.
The US pays in hard cash, and buys on the world market. Russia has to sell because they need the money. No one is cutting any favors in that scenario.
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