The Latin American Borscht Belt
// Igor Sechin plans Russia’s future in Latin America
Only Barack Obama and Hu Jintao can disturb his plans
Russian Deputy Prime Minister Igor Sechin completed a tour of three Latin American countries, Venezuela, Nicaragua and Cuba, on the weekend. His trip was rewarded with the signing of several large contracts. They may not be practical, however, due to the political situation in some of those countries. Serious competition from China and the election of Barack Obama president of the United States could also hinder Moscow’s plans.
Declaration of Success
In the last three months, Sechin has become one of the most recognizable Russian politicians in Venezuela, Nicaragua and Cuba. The deputy prime minister has visited those countries for the second time this autumn, and he was in Cuba in August as well along with chairman of the Security Council Nikolay Patrushev. Sechin returned from his Caracas – Managua – Havana tour yesterday.
In Caracas, Sechin and Venezuelan President Hugo Chavez reached the final agreement on the creation of a joint development bank with $4 billion in capital. Moscow will be represented in it by Gazprombank, and Caracas by the National Bank of Venezuela. The parties will have equal shares. “The bank may become an instrument for the financing of projects on the territory of Russia of Venezuela and carry out the complexes of accounting measures connected with petroleum supplies,” explained Konstantin Vyshkovsky, head of the department of international financial relations at the Russian Finance Ministry.
A joint oil consortium was also discussed. Rosneft head Sergey Bogdanchikov announced yesterday to, toward that end, the National Petroleum Consortium has been registered on October 8, with Gazprom, LUKOIL, Rosneft, Surgutneftegaz and TNK-BP receiving 20 percent each in it. Bogdanchikov said that the operator of the project for the Russian side had yet to be determined. “We have foreseen a rotation principle,” he said. The Venezuelan state company PdVSA will receive the controlling share in the consortium.
Rusal has announced the signing of a memorandum with the Venezuelan Guayana on the creation of a joint venture on equal terms for the construction of a complex to produce aluminum (750,000 tons per year) and alumina (1.4 million tons per year). “Ensuring an electricity supply is a big problem,” complained Rusal international projects director Alexander Livshits. Inter RAO UES is ready to come to the rescue after signing a memorandum on cooperation with the National Electric o. of Venezuela. A source in the company told Kommersant that the modernization of existing electric plants and the construction facilities are both possible. Priority will be given to projects to utilize associated petroleum gas.
Other news includes the possibility that the United Shipbuilding Corp., which Sechin is chairman of, will make large ships for Venezuela, including tankers. Sechin said that the project should show how great the potential for cooperation between Russia and Venezuela is. That potential will be displayed very clearly on November 26, when Russian President Dmitry Medvedev makes an official visit to Caracas. On the same day, joint exercises will begin off the shore of Venezuela with a Russian squadron led by the cruiser Peter the Great taking part.
Sechin’s next stop was Nicaragua, which joined the list of Russia’s best friends in August by recognizing South Ossetia and Abkhazia. When Sechin visited Managua in September, he promised Nicaraguan President Daniel Ortega aid for the development of hydroelectricity and offshore exploration for hydrocarbons. This time, Ortega also told Sechin about two megaprojects that he wants to use Russian investment for. One is the construction of a Nicaragua Canal between the Pacific and Atlantic Oceans as an alternative to the Panama Canal. The other is the reconstruction of the Pachito military airbase, which was built in the 1980s by Soviet military specialists. In December, Ortega will visit Moscow to discuss those projects with Russian president Dmitry Medvedev and Prime Minister Vladimir Putin.
Sechin’s trip ended in Cuba, where he signed an agreement extending the term on Russian state credit to Havana to December 31, 2010. Norilsk Nickel also signed an agreement on cooperation with the Cuba Nickel Co. Cuba has the second largest reserves of nickel in the world, following Russia. A memorandum on cooperation in the petroleum sector was also signed in the presence of the Russian deputy prime minister. That document foresees projects for Zarubezhneft and modernization of the local pipeline system, in which Transneft may take part.
Obviously, political interests play a large part in the developing relations between Moscow and Latin America. Venezuela, Nicaragua and Cuba are united not so much by their attractiveness to investors, as by their hostility to the United States. Representatives of the energy companies whose leaders accompanied Sechin to Nicaragua admitted that their interest in the country arose only after the war in the Caucasus and was informed mainly by political considerations.
In spite of the political support, most of the joint projects are developing with limited success. Kommersant has already written about the problems of Russian business in Venezuela. Russian business is also running up against problems in Cuba. LUKOIL showed interest in modernizing two oil refineries in Cuba in the spring. However, as a Cuban government source told Kommersant, negotiations never proceeded beyond the very initial stages. A source close to the intergovernmental commission explained that Cuba received more profitable propositions from companies in other countries, mainly the U.S.
Besides economic problems, the economic risks in all the countries are rather high, and nowhere more so than in Venezuela, where regional elections will be held on November 23. The governors of all 23 of the country’s states will be elected on that day, as well as 330 mayors and heads of city councils. Regional authorities in Venezuela, especially on the state level, have considerable autonomy and no serious project can be implemented without the political support of local authorities.
Chavez’s supporters in the United Socialist Party of Venezuela hold power in 17 of the states now. But the opposition may receive a major boost in the upcoming elections. Venezuelans are less and less satisfied with Chavez’s policies lately. A clear sign of that was the referendum last December in which voters rejected Chavez’s proposal to remove restrictions on the number of terms a president could serve. That referendum showed that the Venezuelan authorities could not achieve what they wanted even using their administrative resources. Since then, things have only gotten worse for Chavez. The falling price of oil has deprived the authorities of the multimillion dollar social projects they had used to coax the public.
Chavez himself has acknowledged the shakiness of his position. Speaking last Saturday at an election campaign meeting in the oil-rich state of Carabobo, where the Russian-Venezuelan oil consortium is supposed to begin operating, he stated that “These elections are a matter of the future of the homeland. On November 23, the fate of the revolution, socialism and the revolutionary government will be decided, and even the future of Hugo Chavez. If the opposition wins, next year they will try to get rid of Chavez.” Chavez has stated that he will use force to defend his regime in that case. “In the event that oligarchs come to power, I will use tanks to defense the revolutionary government and the people,” he threatened. He used to remind the “forces of counterrevolution” that the people support him. Now he seems less sure of that.
Nicaragua is also in a potentially explosive situation, after municipal elections yesterday. The campaigning, as spokesman for the Supreme Electoral Council Felix Navarrete acknowledged, was the toughest in years. The authorities refused to allow independent observers from nongovernmental organizations access to the voting. The police searched the headquarters of some of them and there were armed clashes between the opposition and government supporters in many areas.
Russia’s position is undermined by competition from China, which has been successfully established itself in Latin America in the last ten years. For example, Beijing and Caracas concluded a deal for Venezuela’s purchase of 18 Chinese tankers for $1.3 billion in 2006 and additional negotiations for Chinese tankers have been long underway. In that light, Chavez’s announcement of the possible construction of tankers in Russia may be nothing more than a ploy in a price dispute with the Chinese. Venezuela need not order tankers from both countries. It does not have that much oil.
Barack Obama’s victory in U.S. presidential elections is also a threat to Russia’s position on the Latin American market. His election was hailed by all the leaders in Latin America, including Chavez, Ortega and Cuba’s Castro brothers. Relations between those countries and the U.S. suffered due the foreign policy of the George W. Bush administration. Last year, Raul Castro called on Washington to lift of the ban on investment in Cuba and normalize relations. He was refused by the Republican administration. Obama spoke during the election campaign of his willingness to begin negotiations with Raul Castro and other leftist leaders in the region without preconditions. If he keeps his promise, business links will be the first to be restored. That means Russian companies will also face competition from the U.S., which has excellent financial and technical resources and knows the market well.
All the Article in Russian as of Nov. 10, 2008