Russia Disappears from the Investment Radar, but Georgia?

Emzar Jgerenaia

Putin’s political-economic system is failing. Russia has entered the phase of investment Ice Age.

His nonpredictable maneuver distinctly appeared from the beginning of 2008 (However Putin had been preparing this background for 6 years), the first thing that became clear for everyone was how Putin, the present President has created his new role as a Prime Minister. This is a new form of control for the world, but as the politicians also the businessmen from the West didn’t take into consideration this fact, as if nothing important has happened, like they forgave Putin the genocide of Chechen and Ingushians, organized teroristic acts, massacred people in Beslan and before that the explosion of dwelling buildings. He was forgiven as for the Yukos affair and property encroachment, also for the nationalization of the whole mass-media and its transition into his property with the FSB and the zombing of the whole Russian nation. Why? Because they received a huge profit and income. In spite of a high political risk, Russia was an attractive country for the investors. Herewith in spite of that Putin turned antimonopoly service – price, mineral natural resource and sanitary service into a business procuratory and began to oppress the different international business consorcium, among them are such serious giants as „TOTAL“, „BP“ and so on. In 2007 in Russia, according to the expert of “Deutche Bank” and himself Kudrin’s department datas, flow of capital from the West composed 82,3 billion dollars investment. Economic growth compiled 8 % and as a result of growing prices on oil budget became proficite, however inflation rate wasn’t lower than 12%. Putin’s Russia became the member of the „Great Seven“, a club of international leading states and Putin considered that the West would forgive him everything as before.
That’s why since 2008 a new era of „Prime Minister – President“ Putin has started and he began acting towards a new program maximum – Russia must be a Super Power by using force. The details of the plan are as follows:
1. Oppression of business, especially artificial unification of the West and the creation of a new state business-giants like „Gazprom“;
2. On the international gas market, by the way of absolute monopolization Russia will make Europe to buy gas at any price and set Russia’s state company not only in the business of Europe’s gas distribution but also in transportation.
With this goal the attack on Georgia and bulling the countries of Caucasus and Middle Asia, establishment of final control over them, and final wreck of the Nabuco project.
3. By strengthening of Asian vector and close contact with China, by military links, integration of its economy on the international market and by attracting capital, will create Russia as a super power and make Putin the richest man (though it is said that Putin’s private capital was more than 70 billion before the war and still he is one of the richest person on the planet).
To achieve his aim Putin issued several laws, which was about leaving Russia the Agreement on Ordinary Armament, then he arranged a military base near the Rocky Tunnel in the North Ossetia and transferred the technics. He issued the law to ease for other country entering Russia’s composition, to use Russian army on the territory of foreign country if it touched the Russian citizens and strategic interesets, then in Ossetia and Abkhazia he dispensed Russian passports and changed law enforcement ministers. In this way he met his election show and on the very next day of the ellection he began acting. Hearwith, before that he made a problem to foreign investors on the projects of „Sakhalin“ gas and in the autobusiness of „BP“. Besides 20% of „BP“’s asset is under his property just in Russia in TNK-BP. England is a serious player on the international arena and that’s why in June Putin created problems to an American media-magnate – Rupert Murdock, who was trading with „BP“. Murdock announced to the British journalists, that he didn’t like the investment climate in Russia and was going to sell his business there before it would be stolen or taken away. The interview was published on August 6 – few hours earlier of Russia’s incursion into Georgia. Also in July „Prime Minister-President“ Putin severely criticized metallurgical company „Mechel“, after that the prices of stock quoting of this company was fallen by 40% on the exchange market of the USA.Russia’s financial market has been shaken. Putin continued business terror. Antimonopoly service (I have known well the chief of this service, we were colleagues several years ago and when we used to meet each other on the international conferences, in spite of that he is a medical not an economist , he had a quite progressive views about free market relationship, but in Putin’s Russia, in imperial Russia everyone has the same face and attitude, like a – dictator) became his instrument of punishment against such famous companies as „Lukoil“, „Gazprom-Neft“, „Postneft“ and among them „Mechel“. In the beginning of August panic was created among the investors, they were afraid that Putin was to start the second „Yukos“ and the capital flow out was followed.To this was added the final phase of conflict between BP-TNK and the proscription of an English manager from Russia. In August Russia began the war against Georgia in a quite difficult situation, but it was strengthened economically and had a good relationship with theWest.
Putin’s hope, that the world wouldn’t disturb itself for Georgia and spend time for a small country and wouldn’t expose its business interests to danger didn’t come true. The fact that he would be forgiven in the same way as for the genocide of Chechen and for the ethnic cleansing and Rusification of Caucasus aslo didn’t come true, in any way for a while.
From the first days of the war capital flow out began rapidly from Russia. Famous Russian
Analyst Igor Nikolaev announced to the journal “Forbes” that Kremlin didn’t have a plan of action towards the market in case of war with Georgia or how to respond on West’s economic operations. In August 120 billion USD were taken away from Russia, 135 billion was spent on supporting Russia’s exchange rate, 50 billion was given to Banks involved in economic crisis in September, in order to please businessmen who were badly touched by Putin’s rash policy and to restore liquid deficiency for the Banks. Herewith, in September the both exchanges collapsed – the index of PTC fell from 2225 to 1000 and the trade was closed. According to “Financial Times” 0n July 27 Gazprom’s capital composed 284 billion before war, but it fell by 40%. In the same situation appeared to be all Russian giants: “Russal”, “Lukoil”, “ Strabag”, the indexes of their capital fell. Austrian Company, Europe’s largest construction-engineering Giant which’s annual turnover was 10.75 billion Euros in 2007 stopped the construction of gigantic cement factory. Its annual capacity is 10 million tons, which is 1/8 of Russia’s demand. The holder of 25% of company’s shares is Oleg Derebaska (Rasperia Trading) – Russia’s one of the influential businessman (before this he experienced a serious loss, when he bought “Norilsnikkel” in an extremely expensive price from Mikhail Prokhorov). Several international contracts of Russian companies has been abolished and “Lukoil” was among them too. Russia’s economic growth in September was 2% instead of 9,6%, but inflation rate was 28%. The construction nearly stopped, seven times less dwelling buildings were built than in the previous period and the prices were frozen on immovable property, liquid deficiency was started in Banks. According to Kudrin, who clearly sees the existing crisis situation, in 2008 capital import will be on the level of 40 billion dollars, which means that war with Georgia marked Russia and investment wouldn’t take place there till the end of the year, because this rate – 40 million – was already fixed in summer.
According to calculation of Russian experts, Russia needs 100-150 billion annual investment to become the country of normal economic and last year they approached this boundary. After the war with Georgia, according to the Western experts Russia lost more than 350 billion by the end of September.
Kingsmil Bond, the expert of famous investment company “Troika Dialogue”, in his analysis develops three scenes of Russia’s development after the Cold War:
1. Foreigners leaving the Fund Investment Market of Russia, who are the owners of half market, caused the failure of exchange and deficit of foreign investment; these facts were provoked by the developing events in August-September. For example, a new project is 19,5 billion dollars, which must be put by investors, in spite of the fact that Putin had taken away their stock share and given 51% to “Gazprom”.
2. According to experts, Russia’s domestic investment supply is 60 billion dollars and most of them are borrowed from foreign countries. If the investment climate is not improved, which is a bit difficult to imagine under the Putin’s governing, not only exchange would be closed, but also huge projects.
3. According to the third scene Russia will disappear from the investment radar, like Argentina and Venezuela.
These were realized by the Putin’s Cabinet and immediately started acting – first, it made concessions to English in case of “BP” and also to French in case of- “TOTAL”. It arranged an economic conference in Sochi that was a farce, besides; he invited France’s Prime Minister and sent a message to Europe to save itself. International Diplomacy started speaking openly. The aim of Putin’s adventure was to resist the new gas pipeline.
This gas pipeline, known as “Nabuko” connects Kazakhstan and Azerbaijan to Europe through Georgia .The second, which technical details were worked out by an American Company is the Baku-Tbilisi-Odessa-Brody pipeline. The meeting on this project will be held in Azerbaijan after the US presidential elections in November. Finally, the presidents of Azerbaijan, Georgia, the Ukraine, Poland and Lithuania consider that Russia’s strategy is directed to wreck these projects and become a monopolist supplier of Europe in natural gas. Moreover, at the end of September Russia signed a new project of gas pipeline construction with the North Korea that costs more than 100 billion and will enter the exploitation in 2012. Russia tries to find an alternative for the European market by way of Asian one. Today the world gas consumption is 3000 billion cubic meters, Russia supplies Europe with 1500 billion cubic meters, among them (see the Table 1) 175 billion is supplied through the Ukraine, 33 billion- through Yamal-Europe gas pipeline, 16 billion- through the Blue Stream (on the Black Sea in Turkey), with its new projects 55 billion (1200 km length pipeline) is supplied by the Northern Stream and 32 billion (900 km length pipeline) by the Southern Stream. This scheme is the motivation of his whole Imperial steps and the general line of Putin’s action plan. The “Nabuko” project will make Russia’s project non-profitable. After the war with Georgia Russia managed to ensure Kazakhstan and today this country is its reliable partner, even in the case of gas transportation. Azerbaijan hesitates- if Russia is not punished for its intervention in Georgia, it will support Russia, however my last visit to Azerbaijan and talks held there, ensured me once more, that there is a serious anti Russian feeling in Azerbaijan. In all their problems, starting from loss of Nagorno-Karabakh and ending with the recent seizure of 7 regions of Azerbaijan by Armenia, they blame Russia and consider that only Europe could save them. But what is happening in the West which is experiencing a deep financial crisis? Here several factors should be determined:
1. Europe has a very serious business links with Russia;
2. Europe aspires to be more independent from the USA and discusses a new plan of Sarkozy that he delivered in his speech on the General Assembly in September.
3. How the West is prepared for the new World order, where dictators and terrorists, conquerors and non democrats will be punished and economy will not have a double standard?
The first is Russian-European business links. On October 1, German Chancellor Angela Merkel was in St. Petersburg and met with Medvedev. They discussed the issues of Northern Stream and also the issues that nobody knows. The involvement of Mikhail Gorbachev in these negotiations (at first on this meeting German Chancellor showed her firm resistance and strongly denounced Russia’s actions in Caucasus, that means that Russia is not in a simple situation), who is an old friend of Merkel, makes us think that Putin tries to use the founder and owner of the “Nezavisimaja Gazeta”, the former Secretary General of the Soviet Union to arrange an affair with Merkel. How Gorbachev will cope with his last mission will be seen in December on the NATO Summit by the support for Georgia. But Russia is seriously trying to bribe the West and prevent the USA from the creation of anti Russian coalition. Russia returned to the “Sakhalin-2” project. Putin is going to rise the price of this project by 2.5 billion dollars and create a liquid fund, by involving the chief of Control Chamber Stepashin in this project. The project “Sakhalin-2” foresees to put in motion the layers of Lunsk and Piltun-oxis on the shelf of Sakhalin. The observed supplies of these layers are 600 million tons of oil, 700 billion cubic meters of gas. The last picture of stockholders is the following: “Gazprom” 50%+1 stock, English-Dutch Royal Dutch Shell- 27.5%, Mitsubishi- 10 %, Mitsui- 12.5%, the cost of project “Operatoria Sakhalin Energy” is 19.7 billion dollars. The list of similar domestic projects, where Western companies and also Korea-Japan business participates are numerous. According to experts, common business capital reaches 300 billion, there are serious innovations even on the international market – at the end of September after Russia-Georgia war, Italian companies “A2A” and “Iride” and “Gazprom” signed an agreement on the creation of joint enterprise which means to be kept with the gas distribution on the Italian market. From 2009 with this project “Gazprom” will occupy 40% of gas supply of Italian market. These two Italian companies are the biggest gas distributors in Italy and together they will hold 50% in the joint enterprise, but “gazprom” will hold 50%. I put this case example for a special purpose, in order to show the style that would be a vivid face and scheme of Russia’s Imperial State-Market Business-Structures.
Besides this, in the middle of September “Gazprom” received a permission from the Council of Europe (Barozzo) to buy both the biggest Italian Energy Trader: Enia S.p.A and Austrian Centrex Europe Energy and Gas AG (source – RBK DAILY ,29.09.08 www.rbcdaily,ru). Maybe there is nothing alarming and surprising, because business has its own laws, but if we examine Berlusconi’s connection with these companies and their common connection with the Southern Stream and with the construction of Blue Stream gas pipeline, we will see that this is purely political issue too and will by all means find the key to this riddle, why Berlusconi supports Russia’s policy against Georgia. It is obvious that it is also a business. Therefore where is the boundary between European politics and business? What will generally happen?
Let’s keep on searching “Gazprom”’s trace in Europe. Greece is against Georgia’s integration into NATO and supports a new agreement between Europe and Russia. It’s hard to imagine Greece’s position after Cyprus case. In September, Greek Prime Minister Constantinos Kramalys stressed that we should not mix up events in Caucasus and the issues of energy relationship and in spite of the USA State Department’s affirmation that “Nabuco” gas pipeline is very important for Greece and that Russia’s project – the Southern Stream – is not strategically justified, Greece’s sympathy towards Putin’s consortium is obvious.
The same situation is in Romania, the official Budapest, Mr. Abel Garamkhed – the State Minister of Economy announced that is not going to refuse the negotiations with Russia on the issues of Southern Stream. According to his statements this project is more realistic and economical and as for the USA’s arguments, Minister declared that he couldn’t see wise conclusions.
In 2007 Russia became the second oil producing country after Saudi Arabia. This year was the peak in oil production for this country. According to experts and to the vice president of “Lukoil”-Leonid Fedun, during the next 20 years Russia will need to invest 1 trillion in oil production and the same amount in gas business in order to preserve the present level. Where will this investment come from? Will it come from the West? (source: PBK # 8, Russia has no alternative, if Western political will opposes Russia’s recent actions, it will disappear from the investment radar and Putin and his followers will disappear from politics. Russia will not be a reliable country for Iran and North Korea, for Mugabe and Hugo Chavez and it won’t be an appropriator of others territories acting under the separatist flag. But Europe wants to be more independent from the USA. This movement is leaded by Sarkozy and this is the second factor. In September on the General Assembly Sarkozy called on the World to control the business and he repeated the same during the meeting with his supporters in Toulon, he declared the principle -“Market is always right” to be a madness and “Laissez-faire” a matter of past. He said that country should transit to the regulatory capitalism and that business needs more control. Moreover, many European experts acknowledged this to be the basic action doctrine of Europe for the next 10 years; however these are just ideas and not details. But the most important from Sarkozy’s announcement is that Europe being overwhelmed by crisis should gain complete economic independence from the USA market. Personally, it reminds me the existence of the Moon without the sun gravitation and generally the gravitation, but I consider Sarkozy’s loud statements to be dangerous for the world. The World has endured the crisis for several times and every time it managed to come out renovated. Just try to imagine where the world business would be if such ideas existed before? But in case of Georgia the most important thing is that the plan of Sarkozy’s Cabinet implies strong economic cooperation with Russia and not preparing action against Russia’s Imperialist aspirations. Coming from this points Europe is not ready for being special. It is predestined for rhetoric and for a long period it will entrust Russia’s criticism to the Council of Europe. There are quite big business interests between Russia and Europe; Putin will do anything to be forgiven for Georgia’s annexation. He will do everything possible in order to return Russia to the investment radar and save his property. Everything depends on Europe, may be everything is up to a price- but how much? Isn’t it? Does logic lead us somewhere else? Will any useful steps be taken for the sake of Georgia in the nearest future? No, it won’t! Europe does not change! By the way, I want to say that there is no difference between the details of Russian Empire and monetary unit.