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Business
03
Interview Deputy Economics Minister Shares Views on
the Structure of Russian Energy Exports
The Future,
Starting Today
Power Switch
Russian Technology is
Ready for the World
Exporters Shifting from
Before the recent change able to Russia’s leading high-
in government, Russian tech companies. The incen-
officials set in motion a series tives would, he said, predom-
Crude to Refined Oil
of radical programs aimed inately focus on the areas
at modernizing the high- Russia where already has
tech sector of the economy. competitive expertise, i.e.,
Rather than distance itself space, atomic and military
from the previous policy, technologies.
the new administration A special governmental agen-
At the beginning of a new Which companies in particular from the previous three years. has decided to extend its cy would be created to man-
year, Deputy Economic are chosing to do this? The elections to the State modernistic agenda. Central age the tax programs, which
Development and Trade Both TNK-BP and Rosneft Duma, the lower house of the to its planning is a belief that are themselves supplementa-
Minister Kirill Androsov have plans to considerably in- Russian parliament, in early high tech, IT, and knowledge- ry to the Development Bank
expressed satisfaction crease capital investment for December greatly influenced based industries will and Development Corpora-
with the course of 2007. the modernization of oil refiner- the dynamics of the govern- eventually form a major part tion already founded, and the
In an interview with ies. ment’s work, especially its of Russia’s economic output. 3 billion rubles in annual sub-
Rossiyskaya Gazeta, But the government has to adoption of the three-year bud- sidies already promised to
he outlines the main make oil refining and the pro- get before autumn. It also en-
ALEXANDR SAVERKIN_ITAR-TASS
EVGENIY ARSYUKHIN
non-commodities exporters
developments. duction of high-quality fuels couraged the introduction of MOSCOW this year.
profitable. As far as I’m con- fundamental laws, which we Born in 1972 in Murmansk rector General of the local 2007 was a overall a pivotal
EVGENIY ARSYUKHIN
cerned, I think we’ll come to a tried to pass in the first half of 1994: graduated from the St. power supply company Le- It was German Gref — the year for the Russian high-tech
ROSSIYSKAYA GAZETA point of no return in the next the year, so that parliamentary Petersburg State Marine Te- nenergo now-departed Minister for industry, not least because it
MOSCOW
two or three years, when you hearings would not be influ- chnical University (SMTU) 2004-2005: Department Di- Economic Development — witnessed the sector's first
will see a substantial increase enced by politics. PhD in Economics rector at the Economic Deve- who introduced the word “hi- IPOs. These were seen as
How is the structure of Russian in investment in Russian refin- Worked as a project manager lopment and Trade Ministry tech” into Russian govern- highly welcome develop-
petrocarbon exports current- eries. What, in your opinion, are Rus- at the Dom Plus agency and an November 10, 2005: appoin- mental parlance. ments, not only because they
ly changing? Is there any move sia's main economic achieve- investment manager at Hansa ted Deputy Economic Develop- Before he left office, Gref an- opened Russian IT firms to
away from crude? Is the cancellation of import ments over the past year? Financial Services ment and Trade Minister nounced a series of reforms worldwide financial resourc-
Producers will export crude duties on equipment tempo- First I would say, the initial pub- From 1997: worked on the St. November 2007: appointed aimed at emulating the high- es, but also because they
as long as it is more profitable rary? lic offerings of Sberbank and Petersburg Municipal Proper- member of the government tech performance of China subjected these businesses
to do so, and the profitability No. Duties have been can- VTB bank. Then there is the ty Management Committee commission for major national and India, and predicted that to international standards of
of the domestic petrochemi- celled on a permanent basis merger of Sovkomflot and No- 2000-2004: First Deputy Di- investment projects Russia would eventually in- transparency and corporate
cals market in Russia remains for any equipment that is not voship into the United Ship- crease its global share in this governance.
lower than crude export rev- produced in Russia. building Corporation; the cre- sector to 10% (from today’s The view of industry insiders
enues. In this situation there ation of the AirUnion airline 0.13%). is also broadly positive.
is little reason to build refiner- What effect do you believe this alliance; and the successful the bill we passed to establish ects and work is underway in Today, Gref is gone, but his Mikhail Pogosyan, CEO of the
ies in Russia. will have? sale of Elgaugol Coal. These the Development Bank, and in- two of them. Then we have radical plan remains at the top illustrious aircraft holding Suk-
But this reasoning holds only Principally, that the export of may appear to be localized deed the establishment of the held four concession tenders. of the government’s agenda. hoi, believes that Russia will
so long as there are enough high value hydrocarbon prod- achievements, but each one bank itself. We have also And, by the end of the year, we Speaking at the Hannover In- soon regain its leading posi-
petrochemicals on the domes- ucts will now increase. will, I believe, have lasting ben- launched an investment fund also expect to begin operating dustrial Fair, Communications tion in aircraft manufacturing.
tic market. As far as I know, efits in terms of developing which will provide similar long- the Petrochemicals ex- Minister Leonid Reiman said Indeed, today overseas sales
some 230 million metric tons How strong is political influence competition in all sectors. term benefits to the country. change. the government recognized are now the main source of in-
of oil out of the 492 million met- on your work at the Ministry? If we are to speak about legis- Here we have already made These are real, important and its responsibility to the high- come for Russian aircraft
ric tons produced in Russia The year 2007 was different lation, then we should mention agreements to fund four proj- substantive milestones.
-
tech sector, and considered manufacturers.
are refined in this country. Of intervention and active sup- Sukhoi, for example, exports
the total, 50% is used in the port essential. He used the the Sukhoi Su-27 and Su-
domestic market, with the rest occasion to outline a series of 30MK fighters to great suc-
exported.
Oil and gas reserves by company Structure of Russia’s fuel balance up to 2020
tax-exemption initiatives, in- cess; experts estimate the
That situation is gradually cluding tax-free business market share of the Su-27
changing. The profitability of zones, which could as early alone amounts to more than
the export market is becoming as this month be made avail- $10 billion.
-
less than that of the local Rus-
sian market. This is encourag-
ing companies to invest in re-
fining activities.
Indeed, the state has several
The Economy Needs
tools for regulating this pro-
cess. For example, it can limit
Restructuring. But how?
the consumption of low-quality
fuel by enforcing the Euro-2
and Euro-3 standards for oil. It There have been no deliberate resources in one sector at the
can also grant excise privileg- attempts to develop high- expense of others. In Russia,
es for higher-quality fuel, which tech industries in Russia. This for example, the growth of
would provide a further incen- is not surprising, since an manufacturing has been 3%
tive for deeper conversion. A economic model that depends slower than the GDP.
recent significant step was the on natural resources is all too Fourth, technology slowdown
decision to cancel duties on im- comfortable. is common in a commodity-de-
ported high-tech refinery equip- pendent economy, while tech-
ment. SOURCE: INDEPENDENT EXPERTS
GLEB FETISOV / ECONOMIST
nological progress is a key
MOSCOW source of economic growth.
If nothing is done, Russia’s role
Russia’s hydrocarbon exports will eventually boil down to sup-
increased from $28 billion in plying the West and China with
Resources Not Simple to Increase Production
according to current trends. the Arctic Circle provide some 1998 to $191 billion in 2006, that raw materials. But can any-
Vladimir Shelkov, director of options for the country’s gas- is, by 583%. Over that same pe- thing be changed now?
Reaching a Natural End
Norilskgazprom, a major gas producing industry,” he said. riod, the share of commodity ex- The government is searching
company in northern Russia, Shelkov emphasized the for- ports in the country’s GDP rose for ways of replacing the com-
believes that the known re- ward-looking nature of such a from 10% to almost 20%. modity-based model with a
sources of Taimyr Peninsula proposition. Given present Why is this situation of depen- new, diversified one; and in-
(located north of the Arctic Cir- conditions, it remains largely dence harmful for Russia? cluded this in its medium-term
While there are no official highly advanced methods — reserves (28% of the world’s cle — RBTH) could alone last unrealistic, given the severe First, by relying on global ener- program and the draft concept
figures available for Russia's including robotic technology reserves or 48 trillion cubic 80 years. “Practically all the climatic conditions, labor gy prices, the system is inher- for Russia’s long-term social
proven reserves, experts — which ultimately makes the meters), and seventh for oil re- easily accessible deposits are shortages, logistical challeng- ently unstable and vulnerable and economic development
agree that there is well under product worth its weight in serves (6.1% or 72 million bar- already under development, es, and the need to build new to regular financial and even until 2020.
100 years of assured supply gold. rels). As a comparison, Saudi but the fields located in Yamal, pipelines to transport gas to social and political crises. In- This may have some effect, but
left. Faced with an inevitable How do things currently stand Arabia is estimated to hold Taimyr and generally north of the mainland.
-
deed, the key reason behind what the country really needs
shortage, the country must in Russia? 22% of the world’s reserves. the recent inflow of oil money is a joint effort from govern-
eventually turn to treacherous Clearly, no one can claim to Approximations of how long was not increased production ment and business in sectors
fields north of the Arctic know Russia’s exact natural this volume can last are fairly
READ ADDITIONAL MATERIALS:
— this was only modest — but where this country already has
Circle. endowment, or how much pessimistic. a boom in global prices. Put competitive advantages, like
time remains until it runs dry. Yevgeni Kozlovsky, a former IGOR TYUKHOV Professor at the All-Russian Research Institute for simply, Russia’s revenues will high-tech. Such re-orientation
ALEXEI ALEXEYEV
The Russian government, for Soviet minister of geology, Electrification of Agriculture plummet if prices begin to fall. will naturally be a long, difficult
MOSCOW its part, has been understand- puts oil reserves at 50 years "SEEKING ALTERNATIVES" Second, mineral resources be- and costly process. Of course,
ably reticent in disclosing the and gas reserves at 75 years. Russia Profile/business, November 30, 2007 come depleted over time, while this might explain why so few
All over the world, natural en- true state of proven reserves. Vladimir Milov, president of www.russiaprofile.org prospecting for new deposits policymakers are prepared to
ergy reserves are reaching The most credible figures so the influential think tank Ener- requires greater investment. support it.
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the point of exhaustion. Ex- far are those provided by Brit- gy Policy Institute differs only VLADIMIR MILOV President of the Energy Policy Institute Third, commodity dependence
tracting the resources that do ish oil company BP, which put slightly: according to his prog- "RUSSIA-EU ENERGY DIALOG: FILLING A VACUUM" is fraught with what some call Dr. Gleb Fetisov, economist,
remain is with increasing fre- Russia in first place in the nosis, Russia’s gas would last Russia in Global Affairs, № 4, October - December 2007 “Dutch disease,” or the exces- member of the Russian Parlia-
quency requiring the use of world in terms of proven gas 80 years; and oil just 40 years eng.globalaffairs.ru sive concentration of labor and ment’s upper house
Technology Russian IT Sector Experiencing Upturn
agement systems increased quite as assured as it once thusiastic about the combina-
from 18% to 28%. was. Steve Chase, president tion of strong export and im-
Skills,Growth Shift IT Balance
According to Alexis Sukharev, of Intel Russia, believes global port potential, as it encourages
founder of Auriga, a software leaders are increasingly turn- foreign clients to approach
research and design company ing to Russia with the most Russian companies “not only
incorporated in the U.S., what complex problems: “The policy as outsourcing partners, but
this has meant is an exponen- we have at Intel is simple. If we also as local promotion and
One of the main pillars of the talization of some 1,162 trillion tial growth in the demand for can, we commit difficult prob- marketing partners.”
Kremlin’s “national project”
Companies’ opinions on the trends in the Rus-
rubles (approximately $48 bil- Russian IT skills abroad. “The lems to engineers in the USA. Makarov was also keen to em-
program is supporting the
sian software development market, percent
lion). Indeed, RUSSOFT, the Russian engineering labor pool If the task is very labor-inten- phasize how rapidly the eco-
growth of the high tech software industry’s represen- now has a lot to offer to compa- sive, we assign it to the Indian nomic situation in Russia is
industry. Much of this tative, suggest that software nies who need specific R&D specialists. If the problem can- changing. In broad terms, the
strategy focuses on long- exports alone account for a 54 skills and comprehensive ap- not be solved, we offer it to the volume of direct investment in
term goals and complicated percent increase since last proaches to complex projects,” Russians.” Russia is now growing by
science. Nonetheless, year. he said. One of the main areas Uncommonly, Russia is not 100% annually. Specifically in
one particular area — the No less significantly, there has of growth has been outsourc- only experiencing accelerated the area of IT, there have been
provision of IT support and been movement to resolve ing, with Russian companies growth in the export of IT prod- radical changes in federal gov-
software — is already many of the issues that previ- increasingly able to become ucts, but also consolidated ernment policy, including the
starting to witness something ously hindered foreign collab- reliable strategic partners for growth in the local market. In- provision of tax breaks and in-
of boom. oration — weak infrastruc- Western high-tech and soft- deed, global IT conglomerates vestment capital to high-tech
ture, lack of knowledge of ware companies. are finding that a focus on the companies. The RUSSOFT
The most recent figures avail- English, management and in- In terms of the outsourcing Russian consumer is now as survey showed 76 percent of
able from the government tellectual property rights. Just market, India remains the in- profitable commercially as market-leading companies
suggest that the volume of this last year, the number of com- disputable leader in the field. their export dimensions. Val- consider government support
market grew by 20 percent in panies with international ISO But its superiority at the top entin Makarov, president of to have improved significantly
the last year, reaching a capi- SOURCE: RUSSOFT or CMM/CMMI standard man- end of this sector is no longer RUSSOFT, is particularly en- over the last two years.
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