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Russia builds resource alliances with Africa

01.01.70

MOSCOW (Mineweb.com) -- Russia is building new resource alliances with Africa aiming, first and foremost, at the oil and gas sector, and then at diamond mining.

To the extent these are capital-sharing partnerships, in which Russian state-controlled companies introduce more capital than they export, they are different from the Russian oligarch ventures that have been seen in Africa already -- Norilsk Nickel's short-lived attempt to buy into, then take over Gold Fields; Renova's manganese licences in South Africa's Kalahari; or Russian Aluminium's Nigerian government-funded takeover of the Aluminium Smelter Company of Nigeria (ALSCON).

Another difference between the new state-controlled Afro-Russian alliances and those of the oligarchs is that the latter aim solely at exporting resources with mininal beneficiation or local value-adding. The former, by contrast, combine already established African expertise and market access in order to optimize returns in international markets for both the African and the Russian partners.

A visit to Africa planned later this year by President Vladimir Putin is likely to raise public awareness of the new strategy; the visit itinerary will include South Africa, Angola, Morocco, and possibly Namibia and the Democratic Republic of Congo. Before then, Putin will host several African observers to the G8 summit conference in St.Petersburg in July. President Thabo Mbeki will be one of them, and energy issues will be the principal item on the G8 agenda.

Gazprom, the dominant supplier of natural gas to northern Europe from Russia, and Sonatrach, the dominant supplier of natural and liquefied gas to southern Europe from Algeria -- both state owned corporations -- have already started planning for what critics have begun calling the gas producers' Opec.

This follows Putin's visit to Algiers last month, and meetings there between Gazprom's chief executive Alexei Miller and two Algerian officials, the minister of power, Shakib Khelilem, and the president of Sonatrach, Mohammed Meziane. A formal memorandum of cooperation is due to be signed whern the latter come to Moscow soon; Gazprom will not say exactly what date has been fixed.

Swaps of gas deliveries between European and North American markets, a common pricing framework, joint exploration projects, pipeline and LNG plant construction on each other's territory, and other forms of cooperation are already in the pipeline. Industry reports indicate that Gazprom has already undertaken to deliver Sonatrach LNG cargoes to the US west coast, and exchanging landline deliveries of Gazprom fuel to France.

To avoid accumulating dollar surpluses, and to invest in downstream gas-fired power systems, gas distribution networks, and retail gas assets, Gazprom is also aiming to buy sizeable stakes in German, UK and other European energy companies. Such deals to capture end-customer business within Europe have triggered media warnings of Russian control over the political insecurities of its neighbours.

Gazprom executives are reluctant to answer questions about their Africa strategy for the time being. Natalia Bortsova, a gas industry analyst in Moscow, told Mineweb that "Gazprom has a serious intention to produce LNG, but currently has no production facilities of its own." Sonatrach was the pioneer of cold liquefication of gas 40 years ago, but according to Bortseva, the technology required for that is readily available in the marketplace now. However, Gazprom acknowledges that Sonatrach has considerable experience building LNG plants, operating them, and marketing the product.

Referring to the Russian LNG project on the island of Sakhalin, in the Sea of Japan, Bortsova said that "Sakhalin LNG is controlled by Shell, and Gazprom has been trying to get a share there without success yet. [An LNG project for St.Petersburg involves] PetroCanada and Gazprom, but the negotiations are still in stage of memorandum of intentions." She acknowledged that Gazprom's desire to export LNG to the US market will run into potential competition with Sonatrach, already a major US supplier, unless the two companies agree to cooperate. "It is very important to create the partnership, not to compete," Bortsova said.

Paolo Scaroni, the chief executive of ENI, an Italian oil and gas group, told the European Parliament last week that he was afraid the small number of gas supplying nations could encourage the formation of an Opec for gas. We are increasingly dependent on a small number of suppliers, he said.

In Angola, Russian state strategy is being supervised by the installation of Vneshtorgbank (Foreign Trade Bank) in Luanda, and by steady expansion of Russian diamond operations, independent of the Israelis and others. Alrosa already participates as a shareholder in the Catoca diamond mine, and it holdsa a stake in Angola's diamond marketing network. Alrosa has done well out of the recent shakeup in the Angolan diamond sector. It has begun to eneter the diamond sector of neighbouring Democratic Republic of Congo (DRC).

The chief executive of Alrosa, Alexander Nichiporuk, recently defended his African focus. "The African direction," he told a meeting of company managers, "is not an alternative, but a significant addition to the industrial and exploration work which is conducted in the basic region of Alrosa activity, the republic of Sakha." Among this year's priorities in the region, Nichiporuk said, "we should determine the directions of further cooperation with the adjacent African countries."

Rusal's owner Oleg Deripaska reportedly sought, without success, to have Putin visit Nigeria to buttress his recent acquisition of the local aluminium smelter company, ALSCON. That transaction has been called corrupt privatization in lawsuits filed in both Nigeria and the US by a rival bidder.

Russian relations with Nigeria have been seriously damaged by the hostage-taking and ransoming of a group of Russian seamen from an oil tanker, who were held without trial in Lagos for two years, until released last December. The Nigerian government also antagonized Moscow by favouring the Chinese over the Russians in the award of military modernization contracts. Nigerian officials in Moscow won't comment.

Expert opinion

Halter Marek

02.12.06

Halter Marek
Le College de France
Olivier Giscard dEstaing

02.12.06

Olivier Giscard dEstaing
COPAM, France
Mika Ohbayashi

02.12.06

Mika Ohbayashi
Institute for Sustainable Energy Poliy
Bill Pace

02.12.06

Bill Pace
World Federalist Movement - Institute for Global Policy
Peter I. Hajnal

01.12.06

Peter I. Hajnal
Toronto University, G8 Research Group