Economy Class Tour
// Dmitry Medvedev's visit to Latin America unlikely to be fruitful
Today Russian President Dmitry Medvedev starts his tour of Latin America. He is going to take part in the APEC summit in Peru, and then visit Russia’s key partners in the region — Brazil, Venezuela and Cuba. This tour was initially planned as demonstration of Russia’s growing role in the region, which was previously considered the U.S. backyard. But the financial crisis and falling oil prices made Moscow adjust its grandiose plans to the current state of affairs. According to the information of Kommersant, the majority of large-scale projects, including a gas pipeline through South America and an oil consortium in Venezuela are either cancelled or will be realized in a different form.
The second coming
The tour, which Russian President Dmitry Medvedev starts today, will be the greatest in his term in office — it is the first time that he is going to visit four countries, which do not border on Russia. Mr Medvedev will surpass even his predecessor’s Latin American achievements – Vladimir Putin paid four visits to the region (to Brazil, Cuba, Mexico and Chile), but he never toured such a big number of countries simultaneously. During his tour Dmitry Medvedev will visit Peru, where he will take part in the APEC summit, and then he will pay visits to Brazil, Venezuela and Cuba.
Moscow pins high hopes on this trip. “Cooperation with the region has been developing. In recent years we have not simply returned to Latin America, we have entered the region anew. The present stage of cooperation can be of a larger scale, compared with the Soviet times,” a source with the Russian Ministry of Foreign Affairs told Kommersant. “Latin America has already ceased to be the U.S. backyard, now the region conducts its own policy, which gives Russia an opportunity to solidify its positions there.”
Thus, Dmitry Medvedev's tour was planned to demonstrate that in Latin America Moscow can operate as successfully as the USA does in post-Soviet territories. Russia decided to ensure its ambitions with demonstration of its military power in close proximity to the USA — in September Russian strategic bombers Tupolev Tu-160 visited Venezuela, and this time a Russian squadron, headed by battle cruiser Pyotr Velikiy, Russia’s flagship, will approach the Venezuelan coast. The squadron will hold exercises with the Venezuelan fleet, with Dmitry Medvedev and the Venezuela’s President Hugo Chavez watching them.
A bulk of plans
Russia has serious business interests in the region. Russian Deputy Prime Minister Igor Sechin has been actively lobbying them in recent months: since July he has visited the region three times already (according to the information of Kommersant it got from sources in the Russian Government, he will accompany Dmitry Medvedev). During Mr Sechin’s trips, a lot of projects were announced, where Moscow was going to participate. The largest of them is the Russian-Venezuelan consortium, where Venezuelan state-owned company PDVSA is planned to have the controlling interest, with five Russian companies (Gazprom, Rosneft, LUKoil, TNK-BP and Surgutneftegaz) owning the rest. During his latest visit Mr Sechin stated that the Russian share will be represented by the National Oil Consortium, registered by Rosneft on October 8, where each company will receive 20%. According to the initial plan, the consortium would get a permit to develop fields in Venezuela, and then it would start operating in the entire Latin America. Another large energy project with Russia’s participation was going to be a gas pipeline from Venezuela to Brazil.
Another promising project for Moscow was Venezuela’s purchasing Russian arms. In the arms sector the total sum of contracts between Russia and Venezuela has been over $4 billion — the largest of them were concluded in 2005. Sources of Kommersant with the Russian military-industrial complex said that during his visit to Moscow in July Hugo Chavez showed interest in purchasing 20 Tor-M1 and Tor-M2E short-range surface-to-air missile systems, three or four 636 submarines, 12 Ilyushin Il-76 and Il-78 strategic air lifters, 24 Sukhoi Su fighters, as well as tanks and infantry fighting vehicles. Rostehnology head Sergey Chemezov, who visited Venezuela with Igor Sechin in September, confirmed Caracas’ interest in the majority of these deals. Signing these contracts could bring Russia over $2 billion.
Crisis talks
The financial crisis and falling oil prices, which affected both the state budget and businesses, made Moscow adjust its grandiose plans to the current state of affairs. Because of lack of liquidity, negotiations for many projects, which were under way till autumn, were frozen. “Now it is more lucrative for Russian companies to invest in Latin American projects than in the development of hydrocarbons in Russia,” RusEnergy expert Mikhail Krutikhin told Kommersant.” “The crisis and unfavorable situation in the hydrocarbon market may significantly influence the profitability of projects, which used to appear lucrative.”
According to the information of Kommersant, this is the reason why heads of several Russian leading energy companies are not going with President Medvedev to Latin America. Sources of Kommersant with the Russian Energy Ministry said that TNK-BP Executive Director German Khan and Gazprom CEO Alexei Miller will not accompany Dmitry Medvedev during his tour (the latter will be substituted with Deputy Chairman of Gazprom’s Management Committee and Director General of Gazprom Export Medvedev Alexander). Sources of Kommersant with the Russian Government are only sure that LUKoil head Vagit Alekperov will be included into the delegation.
Negative trends affected mainly large-scale projects, which demand big investments. According to sources of Kommersant with Gazprom, the monopoly’s representatives are not planning to sign any contracts for a gas pipeline across South America. “Constructing a pipeline will take five or seven years, but since the project is connected with big investments, it is still being drafted. The crisis will shift the launch of the project by a couple years —Gazprom now has problems with financing. So the project’s realization can be expected in 2018 only,” Arbat-capital expert Vitaly Gromadin told Kommersant.
The outlook for the Russian-Venezuelan consortium is unclear too. According to interlocutors of Kommersant, during Dmitry Medvedev's visit to Caracas documents, defining the project’s configuration, are to be signed. Sources of Kommersant are sure that all projects that Russian companies are realizing in Venezuela will be introduced to the consortium. It need be reminded that TNK-BP and PDVSA have an agreement for studying and certifying some deposits. Gazprom has licenses to develop several gas fields, and it has already begun drilling rigs. According to interlocutors of Kommersant, Surgutneftegaz will be involved as a liquidity source mainly.
Sources of Kommersant are sure that from now on the National Oil Consortium will represent the interests of Russian companies in Venezuela, with Igor Sechin being in control of the body. However, the question whether the consortium will receive new fields remains open.
The outlook for arms contracts is even gloomier. Sources of Kommersant with Rosoboronexport say that negotiations for many of the earlier outlined matters (including infantry fighting vehicles and submarines) are conducted, but one should not expect signing any contracts. Things stand no better in civil industries. According to interlocutors of Kommersant, a contract for leasing two Ilyushin Il-96-300 airliners is drafted. In addition, a possibility of concluding a contract for leasing Tupolev Tu-204 will be discussed, but the quantity of these planes has not been defined yet. “It is possible that negotiations of the two presidents will change something,” the interlocutor of Kommersant expressed a faint hope.
From experts’ viewpoint, big arms supplies to Venezuela are unlikely in the near future. “Speculation about Venezuela’s purchasing arms on credit showed that this oil-producing country has financial problems. More to the point, such speculation began when oil cost $150 per barrel, and now its price is below $50,” expert with the Centre for Analysis of Strategies and Technologies Konstantin Makienko told Kommersant. “Historically, there is correlation between oil prices and the arms market’s capacity: the higher the price, the larger the market. Prices have plunged, and the market has dwindled.”
The majority of experts share the view that, given the financial crisis and plummeting oil prices, Russia will simply lack resources - both economic and geopolitical - to realize its ambitious projects in Latin America. Under such circumstances countries that do not depend on oil price fluctuations and that possess big funds – mainly China – have far better chances to promote their interests in the region. This weekend, Chinese President Hu Jintao finishes his tour of the region.
Alexander Gabuyev, Denis Rebrov
All the Article in Russian as of Nov. 21, 2008
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