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Igor Shuvalov: Putin means business


Russia is insisting on preservation of Gazprom's exclusive supplier rights for Europe, and has no intention of abandoning its offer for exchange of energy assets. Igor Shuvalov, aide to the president of the Russian Federation, told a 'Nezavisimaya Gazeta' interviewer about how Russia intends to act in the face of fierce European opposition, and whether the issue of democracy in Russia will be discussed at the Saint Petersburg G8 summit.

We just have a rigid vertical power structure

Igor Ivanovich, on the eve of the Saint Petersburg G8 summit, Russia-US relations are reminiscent of the cold war. At the beginning of May US Vice President Dick Cheney harshly criticised the policies of the Russian authorities. Russia has become embroiled in a discussion - in his recent Address President Putin spoke about the threat to the country's vital interests and of the need to strengthen its defenses.

- The Address was prepared prior to Cheney's statements, therefore the statements of the Russian head of state should not be taken as an answer to the US vice president. Unfortunately there was very little time between Cheney's statements and the Address's delivery. The president does not intend to respond to these statements in any way, and he has not done so.

In Vilnius Cheney accused the Russian authorities of having unfairly and improperly restricted the rights of her [Russia's] people, and indicated that the USA may raise the issue of Russia's observance of democracy at the G8 summit. Are you ready for this?

- During my visit to the USA this April, my American colleagues did not speak about this with me. Moreover, this issue has not been raised even by foreign non-governmental organisations. The Western media, particularly since ratification of the law on NGOs and the circumstances surrounding the delivery of gas through Ukraine, have very quickly managed to create a negative image of Russia. As a result there is the impression that something terrible is happening to the democratic process in our country. But have things become worse over the past four years, has some terrible power been concentrated in Putin's hands? No, we just have a rigid vertical power structure. But it can only be used to resolve certain issues. Only the most irresponsible local governors have been removed. Also, any changes to the system of formation of executive power are balanced out by strong local self-government. It is not an issue of appointment of mayors as governors. Putin is creating the right model of government, in which authorities are clearly delineated at every level.

You're just defending your boss...

- I'm not saying this because I work for Putin. Whatever anyone may say, the current situation is stable. At present many people are thinking about the elections in 2007 and 2008. And this is far more important than everything else. I tell our Western colleagues: we have President Putin and his successor. And the alternative is the left. Do you want people like that as partners?

Be that as it may, the Saint Petersburg summit will take place against an extremely negative background

- That's quite right. I think they would be glad now to put a stop to the wave of criticism with regard to Russia those are the signals I'm getting from them. But it's very difficult to do this.

If, as you believe, the American authorities want to wind down their propaganda machine with regard to Russia, then why is one of the United States' leading figures making comments that are in the spirit of the cold war?

- They have been forced to make these statements under pressure from public opinion and Congress.

In other words, you don't believe that the position stated on Chechnya is the official position of the United States?

- In America all foreign politics is an extension of internal politics. Many of Bush's opponents have a great chance to criticise him for his support of Putin. This is always the way. Nevertheless, Bush always emphasises his good relations with Russia and with our president. The media have been very active in criticising Russia ever since the administration began making statements on non-governmental organisations. Here both Bush's opponents and the American administration itself have begun speaking in unison. The machine has been fired up, and it is very difficult to stop.

What is the size of the contract with the American PR company Ketchum, which was engaged by the presidential administration for work with the Western media? Where will this money come from?

- Ketchum was engaged not by the presidential administration, but by the organising committee for preparation for the G8 summit. And the contract was concluded not using funds from the budget, but at the initiative of a commercial bank. As regards its value, the company is headquartered in New York, and will soon have to make this information public under American law.

The law on NGOs, which was passed at the end of last year, has been harshly criticised not only by congressmen and NGO representatives, but also by senior officials of the American Department of State...

- In the USA everyone is guardedly waiting to see how this law will start working. I have assured my American colleagues that Putin has given strict instructions to the Ministry of Justice that nothing should happen that will force NGOs to cease operating in Russia. Moreover, we are currently awaiting a special Public Chamber report on its monitoring of the law's application. If anything is going wrong, we will reshuffle the work of our authorities, or change the law.

I have also explained to my US colleagues that the law's adoption is by no means a reflection of Putin's unwillingness to listen to non-governmental organisations. That is utter nonsense. We believe that non-governmental organisations must be developed. But foreign countries should not be using them to finance political aims during pre-election campaigns. Of course, we saw how non-governmental organisations took part in the political process in Ukraine and Georgia.

So, do you not believe that the USA could raise the issue of Russia's observance of democratic standards at the summit?

- I don't think this question will be asked. When the G8 leaders talk with Putin, they understand perfectly what Russia's president is doing. At last year's summit one of the leaders said, not all of you support what Vladimir is doing, and some are citing some standards of democracy. But he is doing absolutely everything right in Russia, he is leading the country to real democracy. It should be understood that when they are all together behind closed doors and without their aides, there is no need for platitudes.

A producer should never be too dependant on one buyer

On the eve of the forthcoming Russia-EU summit, relations between Moscow and Brussels have become seriously tangled. How did your recent visit to Brussels go?

- The general tone was that Russian energy companies should be subject to the same rules applied to other commercial entities within the EU. No discrimination. But in cases where the anti-monopoly legislation goes against Russian companies, there will be no-one to protect them. This means that if Gazprom continues to develop its activities in Europe, and most gas is delivered through it, then the EU will have the opportunity to treat Gazprom the same way as, say, Microsoft. And that would not be very good for us, as Microsoft has already been embroiled in legal difficulties in Europe for several years. We tell them that there is a difference between an intellectual product and one for which billions are sunk into the ground as investment. They tried to talk to us in a very odd fashion. But after several days the EU commissar for energy wrote a letter to the Russian authorities, which contained a softening of the European position.

In the letter they stated their agreement to honour Gazprom's long-term contracts for gas supplies to Europe, but in exchange demanded that Russia ratify the Energy Charter Treaty, which places Russia at a great disadvantage.

- It was agreed prior to signature of the Energy Charter Treaty that several of its provisions would be changed in future. It was very important politically for the EU that Russia should sign this document. We agreed to work together on these changes. If such amendments are introduced, and specifically if we are in agreement with the terms of the Transit Protocol, then we can begin the process of ratification of the Energy Charter Treaty.

And as we always say, we share the the principles laid out in the political declaration of the time the Energy Charter itself.

What changes is Russia insisting on?

- For example, the European Commission would like us to treat the EU as a single transport space from the point of view of energy-resource transportation, in other words for the transit regime under the Energy Charter Treaty and developed Transit Protocol not to extend to the EU. The regime for defence of investment must be made complete (it is currently imperfect). We need for Russia-EU trade in nuclear materials to fall under the effectiveness of the Agreement as was initially conceived. Without correction of these imbalances the attractiveness of the Energy Charter declines sharply.

To put it another way, is one of our key conditions that Gazprom or an entity authorised by Gazprom should be specified as sole exporter of gas to Europe?

- The European Commission says that the changing approach to energy security necessitates ensuring third-party access to our energy-transit system, thus giving independent producers the opportunity to transport their production through it and sell it to independent companies. But this does not mean that we are 100-percent agreed with this. In time it will be necessary to legally ensure access to our pipes for independent producers, but gas will always be sold on external markets through a single export channel and this is in the interests of everyone, including the EU.

When will we be able to give independent producers access to our pipelines?

- Independent producers account for 15% of Russia's total gas extraction. Gazprom already receives significant amounts of gas for transportation through the system from dozens of independent suppliers. We have an interest in allowing all gas producers to compete and lower expenses.

And so Russia and the EU still cannot overcome their differences with regard to the key issue the single export channel.

- The Russia-EU summit takes place on 25 May, and these issues will be discussed. The EU justifies its position by asserting that Europe cannot rely on a single source of oil and gas. That is reasonable. But we affirm that we are the most reliable source of supplies. But the more we assert this, the louder they answer: we need to think more about diversifying our supplies.

In these cases we say: if you believe that Russian companies are not the most reliable partners, if you decline our deliveries and find other suppliers, then we will need to have the opportunity to sell our production elsewhere. This does not mean that the gas which is being produced now can be quickly diverted from one pipeline to another. But a producer should never be too dependant on one buyer this is a huge danger for Russia. As regards the country's energy security, on one hand our transport system must be organised in such a way as to prevent events in other countries from putting our suppliers and consumers in a difficult position. And on the other hand, we must be sure of the ultimate saleability of our products. In short, diversification must work in both directions not only for consumers, but for producers too.

We are taking on the role of leader

Does the Russian conception of energy security prioritise long-term contracts ahead of a free market and spot contracts?

- That's not entirely true. We see long-term contracts as one of a number of market instruments, including spot contracts. The nature of acceptable co-relations is defined by the market itself. But we base our activities on the principle that the most important thing for Russia's economy is energy-source production. And in order to produce energy sources in large amounts, we have to be sure that they can be sold at a profit. In order to achieve this, we must maintain a level of intercommunication and interdependence between energy producers and consumers, which is sufficient to ensure their vital interest in commercial prosperity. Having long-term contracts in place stimulates investment in the highly capital-intensive field of energy-resource production. Incidentally, the parameters of contracts concluded for the longest terms are changeable. They are no longer the same as ten or even five years ago they have become more flexible.

Would establishment of interdependence between energy producers and consumers involve exchange of energy assets?

- Amongst other things. A system must be built where everyone suppliers and consumers has a commercial interest in their partners' success. Then all these goals in the energy field will not be met with badly thought-out, instantaneously developed solutions. Exchange of assets is an effective instrument for ensuring long-term global energy security based on security of energy demand and supply.

The idea of exchanging assets has not been met with much enthusiasm in the West. Gazprom was not permitted to participate in the privatisation of Gaz de France, and information on the gas monopoly's purchase of the British company Centrica was met with a flood of indignation from the United Kingdom. And just days ago the chairman of the board of E ON Ruhrgas stated that the concern does not intend to designate German assets for investment in the Southern Russian field...

- It seems to me that the situation is not as simple as that. Europe must understand that the situation has changed. We are not primarily a raw-material producing country, and we see the current state of our economy as temporary. You want our oil and gas? We'll give it to you, thereby stably ensuring global economic development. And our energy companies are developing their business abroad on a mutual basis. Integration of our energy business into the global energy system benefits everyone. We do not hide our interest in using Western technology and experience to help us develop, in order to allow us to convert to a economy based on knowledge, rather than on oil and gas alone. We have been talking about this for many years now. An now, finally, before the summit, they are coming to understand that the red light is on and Putin means business.

And what if Europe doesn't agree to our proposals?

- They will agree. When I first spoke to the Sherpas about exchange of assets in October of last year, one of my colleagues was hostile toward the idea. For example, if BP purchases assets in Russia, it's clear that the same thing cannot happen from our side. Our concept of the matter means that (A) Europe will always feel secure thanks to our energy-resource supplies, and (B) we will be able to effect the transformation of our economy. Without (B), (A) holds no interest for us.

If Europe doesn't accept our conditions, will we attempt to quickly reorient deliveries toward China?

- We see exports of energy resources to Europe as a immediate, current and future economic interest until such time as they find themselves something else, and until we build a pipe to China for ourselves. In any case, Europe cannot get away from us, and we cannot currently get away from them. But this will not have any impact on global energy security.

We are prepared to provide Europe with oil and gas for the long term, and we are taking on the role of leader in this. We will work with other producer countries under a different mechanism. We will continue to expand further, whether our European partners like it or not. If they so desire, this can be done together with European energy companies. But it is obvious that we will be the leaders here. We tell Europe: you are leaders in one field. We have won leadership in another, and in doing so have undertaken great risks, but have so far been successful. Now we are getting into conflicts, but we are moving forward and now we understand how to act in future.

Can we just clarify: leadership or domination?

- We don't want a situation where we would be saying: this is how the market will be, and not otherwise. We do not use oil and gas as an instrument of political blackmail, and have no intention of doing so.

But when we say to Europe 'agree with us or we will reorient our energy-source exports toward China', in doing so we are in effect blackmailing our partners...

- No. They want to diversify their sources of energy supplies, and we want to diversify our market for sale of energy. We are saying 'unless you agree to our conception of energy security, we will behave in precisely the same way that you are. If you keep looking for other contracts for supply of energy sources from other countries, then we will look for other markets, for example by building a pipeline to China. This is a reasonable reaction to the situation. What would we do if they were to say to us 'we won't take your goods anymore, do what you want'?

Is there a risk that at the summit, the G8 leaders will not sign documents in the versions proposed by Russia?

- At G8 summits, statements of intent are made, but these do not have any legal consequence. The G8 is often criticised for the lack of any tangible results. But a great number of countries are watching to see what agreements the leaders come to. Moreover, five of the countries who have been invited to participate in Saint Petersburg India, China, Brazil, South Africa and Mexico have a direct influence on energy security. We do not expect any deals to be concluded the next day after the summit. It is important that everyone should understand the leaders have agreed not to raise political obstacles to mutual economic penetration. Call it interdependence. And the business sector makes the agreements for itself.

Does the concept of energy security involve sale of energy resources at reduced prices, to poor countries for example?

- Our entire conception is based on market principles; however, the international community can and must assist developing countries in overcoming energy poverty. One multilateral instrument for doing so is the Anti-Shock Fund, in which Russia is an active participant.

Does this mean that these assertions were false?

Is Russia ready to disclose data on its reserves of gas as well as oil, which is what several G8 members are insisting on?

- It is an interesting idea. We are looking into it. There are many nuances to the situation, including defending the commercial secrets of private companies. In any case, this measure must not be one taken in isolation, but rather as part of a general energy strategy, not only of the G8, but also of other significant energy producers and consumers.

Is there any intention to postpone passing the law on access to strategic deposits? Investors are nervous that the state may expand the list of these deposits.

- No, the document is being refined, and is under constant discussion in the government and presidential administration. It is not because the process is being artificially prolonged that the law has not yet been passed the document is simply not ready. Although many of our partners have requested that this law be passed before the summit if possible. I believe that this will be very difficult to do, as there's very little time left.

During your visit to the USA in April, did you link access to the Shtokman gasfield for American companies to Russia's WTO ascension?

- No, I did not link this issue to our country's WTO membership in any way. I told them, when they ask about Shtokman they say that Russia is a strategic partner, but when it comes to the WTO our strategic interests are not taken into account. It's a strange thing; one moment USA declares its support for Russia's WTO entry, the next it holds up the process. They have said that they want to see a strong, democratic Russia. Does this mean that these assertions were false?

Were you given any promises as to periods for Russia's WTO ascension?

- My negotiations with my American colleagues on this matter were not of a practical nature.

One of the thorniest topics for the American authorities is the proposal to prohibit branches of foreign banks from operating in Russia.

- The American banks operating within Russia say that this alarm is unfounded. Maybe they would like to ensure access for all banks, including the very smallest. But this does not tally with our remit with regard to banking. Effective banking supervision cannot be ensured when participant numbers are large, and our interest lies in ensuring that the banking system works reliably. Banks must not participate in financing dirty operations. And we are able to ensure this supervision through the system of legal entities and Bank of Russia licensing.

Does Russia have a chance to become a member of the Financial Group of Seven?

- This topic was not discussed during my visits. We have decided not to push this issue. We see the decision not to admit us into the Group of Seven as an exclusively political one, an indirect attempt to put pressure on us. This issue is again connected to democracy, and to certain economic processes. As regards Russia's influence on global economic processes, we say: 'doesn't it seem funny to you that you are sitting down to discuss energy security without Russia?'.

Oil and gas are a natural competitive advantage for Russia. But it is well-known that the West is actively seeking alternative energy sources, and of course, our hydrocarbon reserves are not unlimited. How can Russia preserve its economic sovereignty in the future?

- We are not currently basing our decisions on the size of our hydrocarbon reserves. We are basing them on how many years we will need in order to convert to a knowledge-based economy. Reserves are sufficient for ourselves and our partners. If as a consequence we can ensure economic growth and an innovation-based economy, with particular focus on energy-saving and energy-efficiency technologies, then we have around 20 years to reach a new footing.

We will still extract oil and gas, but our energy balance will be completely different. By this time all social programmes will be financed using funds from sources other than hydrocarbon exports. Then it will be possible to talk of a 'non-oil-based' budget.

The president's Initial Address to the global elite was planned to be dedicated to foreign policy...

- The president changed the structure of the Address; much of it was written by him personally. It differs in this respect from Addresses given in past years. We did propose that his Address be dedicated to foreign policy. We had some large disputes about it, as a result of which it was decided to view foreign policy through the prism of Russia's internal resources. We noted the country's place in global division of labour and that of the Russian economy in the worldwide system, and specified how our internal political institutions should be built up in order to allow Russia to occupy its place in the world as a whole. In the same context we added statements on the demographic problem and military doctrine. Foreign-policy goals were never previously pursued through the medium of internal policy.

Unofficial translation from Russian

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