Russian business  IS QUITE STRONG ACROSS THE CIS - RUSSIAN EXPERT

 

Caspian Energy Investor (CEI): Mr Spassky, how would you estimate Russia's cooperation with CIS countries today? Do not you think this cooperation is quite insufficient and it acquired the manner as per the imperial "double standard" principle?

Victor Spassky, Director, Department for Economic Cooperation with CIS countries, the Ministry of Economic Development and Trade (MEDT) of the Russian Federation: I estimate our cooperation as dynamically progressing: by the results of 2006, Russia's cargo turnover with CIS countries amounted to $64.6 billion, while export was $42.3 billion and import $22.3 billion. This is not little money, as the cargo turnover is approximately 25% greater than in 2005; nevertheless, I would like to admit that the trade could have progressed at a higher rate, especially since we and our partners across the CIS alike have all necessary preconditions.

We build our relations with all states within the Commonwealth on the basis of mutual respect and partnership. No "double standards" can exist here. The matter is that practical interaction with each individual state is established with an account of counterpart's openness for cooperation and readiness to respect interests of the Russian Federation in a worthy manner. The economic links shall be mutually beneficial and respect the principles of market relations, pragmatics and transparency, and compliance to WTO regulations, and shall be based upon mandatory satisfaction of all governmental requirements.

Russia is taking steps to eliminate existing obstacles in trade and economic relations with all CIS countries and lay market principle foundation under the trade of such energy resources as natural gas and crude oil.

At present, Russia's economic interaction with the CIS countries covers virtually all spheres of external economic activity of these countries, including trade, industrial and scientific-technical,  border and interregional cooperation, joint entrepreneurship, investment and innovation collaboration along with financial and credit relations.

The main preconditions for such a partnership are common strategic interests of states related to economics. Such problems as restructuring and modernizing, as well as raising competitiveness of economies, and recovering, in other words establishing cooperation among branches and enterprises with an account for changes taken place, are the matter of importance for many, not saying all, states within the CIS. We are concerned in establishing joint industrial entities, developing key industries and preserving their profile, preventing duplicate and stimulating export-oriented manufactures, as well as in joint access to international goods markets. Not less important tasks are the following: mutual attraction of investments in machine-building and fuel-energy complex development, preservation and development of scientific and technical potential, provision of internal social-economic and political stability. All these issues are much better to decide upon in terms of integration.

 

CEI: New economic associations have been formed within the Commonwealth space. In the outlook, is Russian Government planning to restore broken links among industrial enterprises?

Victor Spassky: The interaction within the CIS allowed for creation of intergovernmental and interstate communication mechanisms on a mutually beneficial basis and establishment of economic cooperation. The Commonwealth played a positive role in a formation of partner relations among newly formed young states. Currently, the parties concurrent interests form the basis of, for example, EurАsEC.

With origination of new economic associations, the development of industrial cooperation links among enterprises and technologically interrelated industries did not lose its importance: it remains an important aspect of Russia's economic cooperation with the CIS countries in terms of fulfilling the universal objective of raising economies competitiveness. For a number of Russian industries, like machine-building, metallurgy and so, where cooperation deliveries secure quite an important place, the CIS countries market still remains the top priority.

Progressing innovative component in national economies is so actual a task for all states within CIS. For this reason, mutual relations call for active use of, apart from simplest contracting form of international cooperation, the up-to-date forms of international scientific-technical and industrial cooperation like international consortium, outsourcing, franchising, corporate associations and so. Such cooperation aims at ramp-up of sophisticated science intensive production and efficient use of feedstock resources.

 

CEI: How would you evaluate the investment climate in Russia? What kind of investors will be given preference in the future?

Victor Spassky: The best estimation and characteristics of investment climate in each country is the dynamics of capital investments inflow from abroad. During previous years we spoke of capital outflow from Russia ($15-20-25 billion per year); last year we registered a massive inflow of private capitals to the Russian Federation, a good sum of $41 billion. From this amount $31 billion are direct foreign investments.

In general, as of late September 2006, the aggregate cumulative foreign capital in Russia amounted to nearly $130 billion, almost half of it were direct investments. The positive changes take place in the structure of accumulated foreign capital: the fraction of direct investments is growing up and that of so-called repaid investments (credits from international financial organizations, trade credit and so) is going down.

It should be noted that Russian Government constantly stresses the importance and necessity in maintaining and improving the investment climate in the country, and takes steps to provide guarantees for foreign investors. This is the objective of Russian investment regulatory drawn in compliance with international standards.

We are interested in the inflow of direct investments to such sectors as energy, agriculture, tourism, social planning. It is remarkable that First Vice-Premier Dmitry Medvedev, who was leading Russian delegation at the last World Economic Forum in Davos, said Russia would create comfortable conditions for ‘incoming private capitals, including foreign.'  Political stability in Russia, as well as sustainable rates of its economic growth, are creating good preconditions for effective investment policy both in the country and abroad. Alongside, Russia's investment cooperation with CIS counties is progressing relatively slowly and bears unused capacities and huge potential. So, in 2006 total aggregated investments from CIS countries to Russia's economy exceeded $1 billion, and direct investments were nearly 40% of this amount. Leading investors in Russian economy among the CIS countries are Kazakhstan, Ukraine, and Azerbaijan.

 

CEI: What are the basic prospects of EurAsEC development? It is planned to expand this association and what are the economic aspects to have created its basis?

Victor Spassky: Integration in Eurasian Economic Community is boosted by potentially high-capacity market of EurAsEC member-countries, complementary raw stocks, similar industrial, technical and consumer standards, and uniform infrastructure, transport and communication parameters. Creating the Community, its members set the objective to possibly maximum meeting the interests of each of them. This process is also boosted by effective advancement in creation of custom union and common economic space through use of new forms and mechanisms of interaction.

The Community development prospects are linked to the stage-by-stage origination of common market through bringing national markets together. EurAsEC member-countries are planning the common protection from probable economic damage from third countries and raising the potential of counteraction to common economic threats, in particular linked to toughened international competition conditioned by globalization in the world's economy.

Not less important it is to establish conditions for free movement of goods and services produced within the Community, as well as capitals and workforce, across the common market. This objective meets national economic interests of all member-countries within the Community.

EurAsEC member-countries set an objective to liven up the interaction in the reportable sector of economy, mutual development of energy market, formation of common capital market, transport union and realization of EurAsEC's transit potential, interaction in agrarian sector, social and humanitarian sphere and migration policy.

The membership in EurAsEC is open for all states to assume obligations arising from the Convention on Customs Union and Uniform Economic Space, Eurasian Economic Community Constituent Convention and other international conventions effecting within the framework of the Community.

New states affiliation is governed by Provision of Order of Enrollment to Eurasian Economic Community approved by the decision of Intergovernmental Council in 2002. So, in January 2006 the Republic of Uzbekistan joined the EurAsEC. Furthermore, Armenia, Moldavia and Ukraine have an observer's status at the EurAsEC. Therefore, this integration association is open for all whom it may concern.

 

CEI: How would you evaluate the last gas supply-related events in the post-Soviet space?

Victor Spassky: First of all, it makes no good to dramatize these events. Russia's increase of exported natural gas price observed the last time is perceived as something next to disaster that would result in alleviation of integration process within the CIS. One should take this issue less emotionally.

Being long-term and well-calculated, pragmatic and transparent, the energy policy is necessary for both Russia and its partners, first of all energy fuel consumers. Possessing significant oil and gas reserves and being one of leading exporters, Russia can and even must provide hydrocarbons stock and products delivery to the outer markets. However, the scale and directions of export shall be defined in strict compliance with economic interests of our country.

One should not politicize these issues. The basic criterion for closing new gas contracts with CIS countries is building the market space around Russia. Starting 2005, Gazprom ОАО has been implementing the policy of stage-by-stage tailoring gas prices for CIS countries (with an account for distance of its transportation) to European level, thus ensuring equal profits from various channels of gas delivery from Russia. The gas price for CIS countries shall cover the costs for production, treatment and transportation of gas, as well as make the profit comparable to that Gazprom makes on selling gas in Western European markets.

Therefore, starting January 2006, the Russian gas price rose almost in twice for most CIS countries. Gazprom keeps on working on stage-by-stage price increase for CIS during 2007 and further. Thus, the last gas delivery-related events are based upon the market approach combined with contractual terms reflecting the energy market situation. Moreover, these events are perceived differently both within and outside CIS.

In this connection one should recall President of Azerbaijan Ilham Aliyev saying in his interview to the Ekho Moskvi radio station that it is Russia's sovereign right to increase prices for exported gas, and it is the sovereign right of each state to decide whether to purchase this gas or not.

 

CEI: What are the spheres of interest for Russian capital? Are there any specific projects Russia is going to implement with CIS countries in electric energy, machine building, metallurgy and high-tech sectors?

Victor Spassky: Russian business secures quite a significant position across the Commonwealth. The Russian Federation is among top ten investors in Belarus, Moldavia, Ukraine. Nevertheless, it should be admitted that Russian capital presence in post-Soviet space still can be called decent: the Russian investments in CIS countries today make up a little more than 2 % of the total amount of Russian capitals invested overseas.

Russian capital is concerned in branches related to extraction of raw stock and fuel, oil refinery plants, facilities of energy industry, ferrous and non-ferrous metallurgy, chemical industry, motor-car construction and so. Last years, investments in mobile communications have grown up significantly. Furthermore, serious investments have been made in banking sector of economy.

As to the specific projects Russia is going to implement with the CIS countries, I will state a few examples.

Energy sector: the Republic of Tajikistan is performing operations on construction of 670MW design output rating Sangtudinsk hydroelectric power plant No.1 (suggested investments are nearly $500 million). A part of Russian investments to the construction of Sangtudinsk hydroelectric power plant No.1 is provided by the government. In December 2006, Vakhsh River was closed by a cofferdam at the construction site of Sangtudinsk hydroelectric power plant No.1, thus enabling the commencement of operations for installation of engine room.

Fuel and energy complex: in 2006 the Governments of the Russian Federation and the Republic of Kazakhstan signed the Convention for cooperation and setup of a joint venture on the basis of Orenburg Gas-processing Plant (50% stock each). It is planned to increase amounts of delivered Kazakh gas and raise the capacities of said Orenburg Gas-processing Plant.

Under the Alliance with Belarus: Development of diesel car-construction industry for the period up to 2008 - joint manufacture of cars complying with Euro-3 environmental standard and industry upgrade for compliance with Euro-4 standard.

 

Thank you for the interview.