RUSSIA BEYOND THE HEADLINES WWW.RBTH.RU GULF NEWS_WEDNESDAY_DECEMBER_05_2012 Distributed with
Rubrica
01 www.rbth.com
Special supplement from Rossiyskaya Gazeta (Moscow, Russia) which takes sole responsibility for the contents.
Š RIA NOVOSTI
GETTY IMAGES/FOTOBANK
Special Report Metals and mining - a strategic sector of Russia's economy. P.04-05
Travel Where to go for those in search of good fortune. P.06
Wednesday, November 26, 2014
International APEC and G20 summits demonstrate growing cooperation between Russia and Asia as relations with West remain strained
Boosting economic ties with BRICS in Beijing and Brisbane Vladimir Putin in discussion with HRH Salman bin Abdulaziz Al Saud, Crown Prince of Saudi Arabia, in Brisbane.
ALEXEI DRUZHININ /TASS
The recent APEC and G20 summits saw dialogue between Moscow and the West on the Ukrainian crisis and a further strengthening of ties between Russia and its BRICS partners. GEVORG MIRZAYAN, NIKOLAI SURKOV SPECIAL TO RBTH
In November Russian President Vladimir Putin visited two important international events: the APEC summit in China and the G20 summit in Australia. In Beijing everything went well, but during the G20 the Russian leader unexpectedly left a day before the end of the event. Putin's early departure gave the world's media an opportunity to proclaim Russia's growing isolation and a split in the G20.
The Russian president, however, said at the final press conference that journalists had exaggerated about the intensity of emotions during the summit. "I looked at the local media and at the foreign one," Putin said. "The situation was blown out of proportion a bit. Reality and the media's interpretation of it in the given circumstance were completely different." On the first day the Russian leader attended all the necessary meetings and negotiations, after which he said that he needed "to return to work," and then left. He missed only the protocol events and some meetings to which he had originally not been invited (though one of these happened to be a discussion on Ukraine).
Despite much media talk before the summit about Australian Prime Minister Tony Abbott's promise to "shirtfront" (knock down) the Russian president over
Russian analysts now see a more flexible attitude in Brussels' position on the conflict in Ukraine. Moscow's alleged role in the downing of Malaysia Airlines Flight MH17 over eastern Ukraine in July, Putin had positive comments about the summit in Brisbane. He said that the event had provided "a very friendly working atmosphere." "We discussed constructively not only
Monthly issues distributed with the world leading newspapers. The content is carefully build around the topic of the month and targeted to your interests.
We differ our content by our platforms. Do not miss out:
Read our print in digital format >> rbth.com/e-paper
the issues for which we all gathered, but also very heavy matters, such as the crash of the Malaysian Boeing, objectively, constructively," Putin told RIA Novosti upon returning to Moscow. "I assure you that everything occurred not only within the limits of cordiality, but in a very friendly way."
Time to move forward on Ukraine In Brisbane Putin had several meetings with Western leaders, in particular with Angela Merkel, the details of which remain unknown. However, the peaceful rhetoric of the two key European leaders, French President Francois Hollande and German Chancellor Angela Merkel, as well as of the EU High Representative for Foreign
Affairs Federica Mogherini, indicate that the meeting was productive. All three said that it is time to return to normal negotiations with Russia on the future of Ukraine and on the restoration of RussianEuropean relations. It is important to note that the EU refrained from expanding sanctions against Russia, limiting itself to blacklisting members of the leadership of the unrecognised republics of the Donbass region of eastern Ukraine. Moreover, soon after the summit German Foreign Minister Frank-Walter Steinmeier arrived in Moscow and confirmed Berlin's commitment to the peace agreements signed in Minsk in September, which envisage direct contact between Kiev and the Donbass
separatists. The Kremlin, according to Russian Foreign Minister Sergei Lavrov, is also gambling precisely on this format of regulating the crisis. Meanwhile, Russian analysts are seeing more flexibility in Brussels' position. "The Europeans will not alter their opinion about Russia being a party to the conflict in Ukraine," says Andrei Sushentsov, managing partner of the Moscowbased Foreign Policy Analytical Agency. "However, their position on the issue of Ukraine's responsibility for events in the Donbass, for the region's humanitarian catastrophe and for the breakdown in negotiations with Moscow is becoming more flexible." CONTINUED ON PAGE 2
Daily updates on current events, analytical reviews and full versions of experts` interviews, colorful photo-galleries, video-stories with outstanding personalities. Become our subscriber >> rbth.com/subscribe
02
RUSSIA BEYOND THE HEADLINES www.rbth.com
Politics
GULF NEWS_WEDNESDAY_NOVEMBER_26_2014
International Russia continues to accelerate reorientation of its energy strategy towards Asia
Second gas pipeline to serve China there is no possibility of the South Stream project being rejected. "Russia, despite the establishment of trade and economic relations with the Asian-Pacific countries, will remain a reliable supplier of gas to Europe."
Russia has signed an agreement to supply China with natural gas for 30 years via a new pipeline. The Altai 'western' route could supply up to 100 billion cubic metres of gas annually. LEONID HOMERIKI SPECIAL TO RBTH
Gas as big politics
Gazprom's CEO Alexei Miller and Chairman of the China National Petroleum Corporation (CNPC) Zhou Jiping have signed a framework agreement on the supply of natural gas from Russia to China via a "western" route. The document, signed by the two parties at the APEC summit in Beijing on Nov. 8-10, envisages an annual supply of 30 billion cubic metres of Russian gas from Western Siberian deposits to China through the Altai gas pipeline for a period of 30 years. According to Gazprom CEO Alexei Miller, the supply contract using the western route will be signed by the end of 2015. In particular, the document touches upon conditions such as the volume and terms of delivery, the level of "take and pay" (the buyer's obligation to pay a certain penalty in the event that consumption volumes are less than specified in the contract) and the location of the transfer point for the gas on the border. In the future, the sides will have to sign a sales contract and an intergovernmental agreement. The contract value, and consequently the gas price, have not been determined. "It is clear that the price will be lower than that of the deliveries made via the eastern route [the Power of Siberia gas pipeline, whose price per cubic metre is not known, though is estimated at $350 – RBTH], since the investments in infrastructure (transportation and extraction) are significantly less," says Grigory Birg from analytical agency Investcafe. According to Platon Maguta, general director at the Maguta Fund, the economically rational gas price for China is currently
However, there are those who think that the sudden acceleration in gas cooperation between Russia and China is conditioned by political, rather than economic factors. "By all appearances, Russia is actively working with China, and Asia in general, precisely in the context of the Western sanctions and the creation of alternative distribution channels for its energy resources," says Anna Bodrova, Senior Analyst at the Alpari Group. "Logically speaking, all these negotiations should have been completed a couple of years ago, so that now it would already be possible to start intelligence work and construction." However, Mikhail Krutikhin, a partner at Rusenergy, says that both projects supplying gas to China may turn out to be economically and politically disadvantageous for Russia. Firstly, he says, the western route pipeline will take 8,000 kilometres to reach China's economically developed regions. For Western Siberian gas to be competitive in terms of transportation costs, the length of the route must not exceed 5,000 kilometres. Therefore, it is possible that China will receive the gas at a price that is advantageous only for Beijing. Moreover, it is important to note that the gas market is developing also in Europe, to which Russia supplied 138 billion cubic metres of gas in 2013. The expected volumes of supplies through the eastern and western routes to China, meanwhile, are almost half of this figure: an annual 68 billion cubic metres until 2020.
THE NUMBERS
30 billion The new ‘western’ route has the potential to outstrip the Power of Siberia eastern pipeline.
about $380-400 per 1,000 cubic metres. This is influenced by the fact that supplies will mostly come from the deposits in the far north of Russia (Yamal, Yakutia, etc.) Lately Gazprom has been accelerating the pace of collaboration with its Chinese partners. The construction of the Power of Siberia, the world's biggest pipeline, which will deliver gas through the eastern route, is being carried out at full speed.
Altai pipeline may surpass Power of Siberia "Negotiations on the western route through Altai have been going on since 2010, but then emphasis was given to the ‘eastern’ route, since the main consumers are located in eastern China and the demand is greater there," explained the
press office of the Russian Energy Ministry. The press office also noted that China's use of gas is constantly increasing: In 2015 China will use from 470 to 930 billion cubic metres. There is also the possibility of supplying up to 100 billion cubic metres of gas annually through the western route. According to Alexei Miller, the western route may be launched even sooner than the eastern one, due to the available pipelines and infrastructure. "The western corridor is united by a single gas transportation system and by the main deposits in Western Siberia; that is, the resource base already exists," confirmed the Energy Ministry. Western Siberia's deposits are also the resource base that is used for supplies to Europe.
The Power of Siberia The 30-year agreement to supply up to 38 billion cubic metres of gas annually through the Power of Siberia gas pipeline from the Chayanda and Kovyktinsky deposits was signed by Gazprom and the CNPC in May. The total value of the contract is $400 billion, with investments in the project estimated to be $55 billion. Construction of the pipeline began on Sept. 1 and exportation is scheduled to commence between 2018 and 2020.
INTERVIEW SAMEERA EBRAHIM BIN RAJAB
Multipolarity is important for worldwide stability
each other. This is very important for us. Can you tell more about economic cooperation? Bahrain invests in the Russian economy, in Russian assets.
Minister of State for Information Affairs of Bahrain Sameera Ebrahim Bin Rajab told RBTH about the rapid development of RussianBahraini ties and explained why Russia’s prestige in the Middle East has been growing recently.
What is the image of Russia among the Bahraini public? For us Russia is a superpower. Russia proved its credibility, and its image has improved During last few years Russia enjoyed much greater respect in the region. It happened because of the external interference that is causing very dangerous chaos.The people believe that there are external forces that try to cause damage in our region, provoke sectarian conflicts, civil unrest, conflicts between
AFP/EASTNEWS
Madam Minister, what is the purpose of your current visit to Moscow? I came with the first direct flight from Manama made by our national carrier Gulf Air. We see it as a historical development. There will be four flights a week and it shows how interested we are in bilateral cooperation. We have economic, cultural and even military ties. Our ministry is developing cooperation between media.
states. All this we saw in Iraq, Libya, Sudan, Egypt, and Yemen. They tried to damage Bahrain. People wonder who is interested in this turmoil. And there is belief that Western policy is behind the troubles. So other superpowers have more credibility. Russia’s credibility began to grow. Russia is filling the lack of friends, the vacuum which was created by the storm. Besides that, we have been watching Russian television. The vision of the world that Russia Today [RT] provides is closer to our belief. So it also helps improve Russia’s image.
Bilateral contacts and visits of our leaders also helped to build a better image of Russia. Relations between Russia and Bahrain are developing rapidly. What is the foundation of this process? The main reason is that the region began to think that multipolarity is very important for the stability of the whole world. The second reason is Russia’s economic potential. It is important but political considerations are in first place. The similar mindset of our two peoples also helps. One has a feeling that our cultures are close to
What are the areas for cooperation between Russia and Bahrain? Bahrain historically was a transit centre between the East and the West and we would like to become a commercial centre for Russia.We also have free zones with attractive conditions for manufacturing. Bahrain is the main financial centre in the Gulf and in the Middle East.We have very good investment legislation and regulations. But the most important thing is that Bahrain is tax-free, like the Virgin Islands. No income tax, neither for individuals nor for companies. There are only three or four places like this in the world. What is the main advantage of your country? It is the open society. We enjoy a combination of liberality and conservatism. We are a Muslim country and are conservative in some ways.Yet we are free and liberal. For example, I am a Muslim and follow all the rules of Islam. Yet I have a modern lifestyle. The women in Bahrain are empowered and practise their political rights freely. We are trying to preserve this unique balance and resist the Islamist forces that try to pull us back. Prepared by Nikolai Surkov
© RIA NOVOSTI
Cubic metres of gas will be exported to China annually via the western route.
At the same time, Gazprom still has to modernise the existing gas transportation infrastructure and construct a gas pipeline to the Chinese border, which will pass through rather complicated terrain. Investments in the Altai gas pipeline are estimated at $11-14 billion. Some experts believe that Russia may freeze the expensive projects concerning the construction of gas pipelines and gas liquefaction that are oriented towards western consumers, since there may not be enough resources to simultaneously realise several large projects. The troubled South Stream project to transport Russian natural gas to Europe via the Black Sea be one of the first. However, according to the Energy Ministry, for the time being
Boosting economic ties with BRICS in Beijing and Brisbane CONTINUED FROM PAGE 1
New approaches to global regulation However, Moscow is still feeling the pressure of the sanctions and is trying to compensate for the deterioration of relations with the West by strengthening ties with Asian countries and its partners in the BRICS group (Brazil, India, China and South Africa). A key topic of discussion by the group in Brisbane was the World Monetary Fund reform proclaimed by the G20 in 2010, which collapsed after US Congress failed to ratify it. Once again the BRICS leaders confirmed that the BRICS Development Bank will be operating by 2016. According to Dmitry Suslov, a member of theValdai Club (an annual discussion forum devoted to Russia's role in international affairs), the sanctions implemented against Russia, which the developing countries view as the West's abuse of its powers, only encourage the creation of such alternative structures and institutions. During the summits in Beijing and Brisbane Putin also spoke of establishing absolutely new ties in the world arena - first of all, concerning global management. "The current G20 was conceived as a format of collective respon-
sibility for the institution of global economic regulation, the International Monetary Fund," says Kirill Koktysh, a professor of Political Theory at the Moscow State Institute of International Relations. "And in this sense it justified itself. Consequently, there emerge two alternative contours to global regulation: the APEC, constructed by China, and BRICS. Russia participates in both."
Turn towards East will continue During the Asian summits Vladimir Putin also sounded the possibilities and advantages of turning Russia to the East. A landmark event was the signing in Beijing of a new agreement on large-scale supplies of Russian gas to China. "At the end of the year the government will present economic and infrastructural program," says Andrei Sushentsov of the Foreign Policy Analytical Agency. "This programme foresees the realisation of a series of infrastructural projects aimed at the expansion of the transit of goods along the Trans Siberian Railway and the Baikal-Amur Mainline, as well as the development of port infrastructure. It is therefore clear why in Beijing Putin was interested in the development of Asia's economy."
RUSSIA BEYOND THE HEADLINES www.rbth.com
Economy
GULF NEWS_WEDNESDAY_NOVEMBER_26_2014
Finance Russia's flagging currency goes into freefall against dollar and euro before rallying
Central Bank lets ruble float freely on markets Russia's Central Bank will make no further currency interventions to prop up the ailing ruble. Analysts believe that ultimately the decision will help to stabilise the Russian financial system. ALEXEI LOSSAN
The Russian Central Bank has switched to a floating exchange rate policy for the national currency, the ruble. Under the new strategy, the Bank of Russia will no longer carry out full-scale currency interventions, i.e. sell dollars on the Russian market. The regulator has set a cap for its daily dollar sales at $350 million, which, according to analysts, cannot influence exchange rates. Previously, the Central Bank would carry out interventions until the ruble rate stabilised. For example, in October 2014, it spent some $29.3 billion to support the national currency, while for nine days from late October it was selling over $2 billion a day. The press service of the Russian Central Bank explained that the decision to stop unlimited currency interventions will prevent speculation against the ruble. However, the decision to stop propping up the ruble resulted in drastic fluctuations in the ruble exchange rate: During trading on Nov. 8 it first fell nearly 10 per cent against the dollar, before rebounding and practically canceling out the decrease.
REUTERS
RBTH
THE NUMBERS
29.3 billion
25 per cent
87 dollars
dollars spent by Russian Central Bank in October to support the national currency.
Since the beginning of 2014, the Russian ruble has plummeted by more than 25 per cent against the dollar.
per barrel. Market players blame persistently declining oil prices for the ruble’s depreciation.
New strategy “The Central Bank’s decision forms part of the strategy of switching to inflation targeting, with a floating rate of the national currency being part of it,” says head of research at IK Russ-Invest Dmitry Bedenkov.
More fluctuations in the ruble are possible as the currency market adapts to the new mechanism, says the Central Bank.
At the same time, he adds, the Central Bank has reserved the right to carry out interventions above the $350-million cap should it feel there is a threat to stability. The introduction of daily limits on interventions at the boundar-
ies of the currency corridors is intended to reduce pressure on the gold and foreign exchange reserves, Bedenkov explains. The Central Bank attributed the drop in the ruble rate that followed to fundamental factors: the fall in oil prices and restricted access to external capital markets. According to the regulator, it will take the currency market a while to adapt to the new exchange rate policy mechanism, during which time the ruble may fluctuate in either direction. Furthermore, the growth of the US economy is pushing the dollar up against other currencies. In particular, the pound sterling has dropped to this year’s lowest rate
against the dollar, the euro is at its lowest against the dollar in two years, and the Japanese yen is at its lowest against the dollar in seven years.
Possible outcomes “The first outcomes of the ‘new strategy’ are simple," says Anton Soroko, an analyst with the Finam investment holding company. "The ruble is hitting new lows as the Central Bank’s interventions in recent weeks considerably restrained the drive to sell." However, he adds, in this way the ruble is gradually covering the path towards becoming a freely convertible currency, which means it will be possible to exchange it into any other currency, bypassing reserve ones. “For example, in order to exchange rubles into Swiss francs or Mexican pesos, it is currently necessary to first convert them into US dollars at the Central Bank rate and only then can the dollars be exchanged into pesos,” Soroko explains. This results in an additional transaction, which increases the costs of the economic agent and makes the key reserve currency all the more influential, he adds. According to Soroko, in the long term, the switch to a floating exchange rate is good news for the economy, however, short-term expectations are not especially optimistic. “Firstly, free conversion means that the Central Bank will stop having an influence on the Russian national currency's pricing, which in the end will increase volatility,” he explains. Making short-term currency risk forecasts will become considerably more difficult, which will have a negative effect for companies heavily involved with foreign partners. For ordinary Russian consumers, it will entail risks associated with a falling ruble, which will affect purchasing power, as some goods are bought with foreign currency, says Soroko. Having said that, the Central Bank has made it clear that in the event of a drastic and protracted fall by the ruble, it may revert to selling dollars on the market.
03
Russia jumps 30 places in World Bank's 2014 Doing Business rating The World Bank has presented its annual Doing Business Ranking, which ranks the countries with the most attractive business regulations. Russia is in 62nd position, 30 places higher than last year. There are 189 countries on the list. Russia is between Greece and Moldova, and as in last year's ranking, stands ahead of the other BRICS countries (China is in 90th place, Brazil in 120th). Among the main obstacles to doing business in Russia is still the low level of investor protection and barriers in trade operations and construction. However, the World Bank noted the reforms that were carried out in 2013-2014, which simplified the registration of enterprises (including the cancelation of mandatory prepayment of authorised capital) and the registration of property (including the reduction of periods for providing government services). Each country's rank is based on a survey of companies (there are 10,200 respondents) using 10 parameters. In last year's ranking Russia was in 92nd place, having progressed from the previous year by 20 positions. This year's sudden leap up the ranking is mainly a result of a new calculation method. For the first time the ranking included not only an assessment of the ease of doing business in Moscow, but also St. Petersburg, which turned out to be favourable for Russia. If this year's method had been applied last year, the difference would have been only two points. The leaders of the ranking were not influenced by the new method, however: Singapore came in first, as it had done last year, and the top five positions were occupied by New Zealand, Hong Kong, Denmark and South Korea. Based on material published by Kommersant, Lenta.ru.
Energy Moscow keen to expand oil and gas business with UAE, as well as developing nuclear power partnership
Russia eyes cooperation in Gulf energy market Moscow has emphasised its commitment to boosting oil and gas ties in the Gulf, as well as developing an active partnership with the UAE and other regional states in the nuclear power field. YEKATERINA POKROVSKAYA SPECIAL TO RBTH
Russia is looking to the Gulf as a viable partner in energy projects, with leading Russian firms ready to team up in developing the UAE’s oilfields and supply it with LNG and nuclear fuel. Deputy Energy Minister Yury Sentyurin, speaking at the POWER-GEN Middle East conference and exhibition in Abu Dhabi on Oct. 12-14, stressed increased mutual interest and the importance of cooperation in diverse energy projects with the Gulf states, including partnership in developing hydrocarbons, nuclear power generation, and renewable energy. One of the potential fields for cooperation is natural gas. The
combination of a rapidly growing population and an industrial boom in the UAE is forcing the country to look for alternative fossil fuels and, above all, natural gas. Since billions may be needed to untap the region’s gas reserves, the import of LNG is being considered as an option to satisfy its growing demand for gas - according to IHS Energy and Power Consulting, gas consumption in the Gulf countries will reach 400 bcm by 2030. As Sentyurin noted, Gazprom Marketing and Trading, a subsidiary of the state-owned Russian gas giant, currently has proposals for supplying LNG to each of the Gulf countries (except Qatar) under consideration by the respective governments. Sentyurin explains that once several LNG plants now under construction in Russia are fully operational, "Russia would be able to supply 25-30 per cent of Russian LNG to the Asia-Pacific Region."
Oil is still in the game
Time for renewable energy has come Russia has applied to join the International Renewable Energy Council, and has set a target to produce 6 GW of renewable energy from a combination of new high-efficiency green gas-steam generators, coalburning condensation power stations, and solar power stations by 2020. At the Russia Day of the UAE Power-Generation Middle East Exhibition, Russia presented two generating facilities operating on solar power launched in 2013: a 100 KW facility in the Altai Republic, on the Kazakh border, and a 127 KW unit in Sochi, on the Black Sea coast. As Adnan Amin, Director of the International Renewable Agency, said, Russia's plans to produce 4 per cent of its power from renewables by 2020 are "a viable target."
As Abu Dhabi seeks to increase its oil output capacity to 3.5 million barrels a day by 2017, it has conducted a tender for new oil concessions to be awarded to international oil companies. Russian state-owned oil giant Rosneft took part in the bidding, and according to Sentyurin, the bid is currently “in the process of revision by the UAE’s top government body - the UAE Supreme Oil Council.” The old concessions, owned in a consortium by IOC majors like BP, Exxon Mobil and others, expired at the beginning of the year, and there has been speculation that the Supreme Petroleum Council would favour new companies from Asia and Russia to join in the award of new concessions. Rosneft also signed a Memorandum on Cooperation with UAEbased company Mubadala Petroleum at the St. Petersburg International Economic Forum in the summer. According to Rosneft,
the non-binding agreement provides for the possible participation of Mubadala Petroleum in the development of Rosneft assets in Eastern Siberia, and the participation of Rosneft in Mubadala Petroleum’s international projects. Sentyurin also confirmed that Rosneft plans to open a representative office in the UAE.
According to IHS Energy and Power Consulting, gas consumption in the Gulf countries will reach 400 bcm by 2030. Gulf goes nuclear Another energy sector in which Russia is becoming a major partner in the Middle East is nuclear energy. “Russia is using innovative technologies in constructing nuclear power platforms in Russia and abroad: These are new energy blocks of the new Genera-
tion 3+ type,”explained Sentyurin. Partnering with Russia in nuclear power projects will reduce the need for the region’s countries to develop their own nuclear fuel cycle and its most proliferationsensitive stages, such as uranium enrichment and nuclear fuel reprocessing. The UAE is developing an active partnership with Russia in nuclear power generation projects. In 2015 Russia’s state nuclear energy corporation Rosatom will begin supplying Emirates Nuclear Company with enriched uranium products and services, as per an agreement signed in 2012. The UAE is not Russia’s sole partner in the MENA region. Earlier this year Rosatom signed a cooperation memorandum with Saudi Arabia on pursuing opportunities in the nuclear power generation field. The corporation has also won a tender for the construction of a 2000 megawatt nuclear power plant in Jordan.
RBTH for iPad
FOR EACH OF YOU, THERE IS A RUSSIA OF YOUR CHOICE
SCAN WITH LAYA R
04
RUSSIA BEYOND THE HEADLINES www.rbth.com
Special Report
GULF NEWS_WEDNESDAY_NOVEMBER_26_2014
RAW MATERIALS RUSSIA’S METALS AND MINING SECTOR MAY HAVE A LOWER POLITICAL PROFILE THAN OIL AND GAS, YET THE SPHERE IS SEEING PLENTY OF ACTIVITY, DESPITE FALLING PRICES
RUSSIAN METALS AND MINING: TURNING THE CORNER Global metals and mining firms face a difficult operating environment amid falling commodity prices. Russian companies are cutting costs and refocusing on domestic assets. DAVID MILLER AND ALEXEI LOSSAN RBTH
Russia’s metals and mining industry, the country’s second-most important sector after oil and gas, has faced its share of adversity since the salad days of the past decade, when commodity prices were pushed skyward by a leap in demand from China and India. Today, as lower commodity prices put pressure on resource producers around the world, many Russian metals and mining companies are nevertheless showing respectable profit margins, after shedding non-core operations and taking difficult steps towards rebuilding. Iron ore prices fell to a five-year low in September as Chinese demand slackened off and economic activity in Europe and Japan remained weak. Even so, for Russian firms, signs are emerging that, in some areas, the future may be looking a little brighter. “The global aluminium industry has turned a corner,” declared Rusal CEO Oleg Deripaska in a statement this summer after the firm, which produces almost 9 per cent of the world’s aluminium, posted an income of $116 million in the second quarter of 2014. Those results marked the first time Rusal had reported a quarterly profit in over a year. Meanwhile, aluminium prices have been rising in the third quarter. “Positive price momentum is supported by strong fundamentals,” Mr. Deripaska said. Another hallmark of the sector is that Russian industries outside the realm of oil and gas are better insulated from the blast furnace of Russian politics than their cousins in the hydrocarbon trade. As US and European officials pursue sanctions against Russian energy, arms and finance firms, the producers of Russian steel, coal, diamonds, iron, palladium, aluminium and potash labour away quietly in the background — not fully removed from politics, but further away from the heat. Coal, especially, may be set for a renaissance in Russia, thanks to new investment plans in the country’s eastern regions, even as miners in the US and Australia face among the most difficult years in the history of their industry.
National gold mine Russia, the largest country in the world, sits atop of some of the planet’s biggest reserves of minerals and natural resources. The Russian earth holds some 25 billion tonnes of iron ore, the third-largest reserves in the world after Australia and Brazil.
High up in the frozen north, above the Arctic Circle, a company called Norilsk Nickel produces 14 per cent of the world’s nickel and 41 per cent of its palladium. Norilsk is also a top-four producer of platinum, with 11 per cent of global output, and a significant player in the copper industry, with 2 per cent of world supply. State-controlled Alrosa, the world’s biggest diamond miner, taps rich deposits in Siberia to yield 26 per cent of global diamond production. Its South African rival, De Beers, is in second place with 22 per cent. Despite years of tight control by the Russian government, Alrosa finally opened to public investment last year, raising $1.3 billion in an Initial Public Offering (IPO) on the Moscow Stock Exchange and reportedly selling some 60 per cent of shares to US investors. Russia is also the third-largest exporter of primary aluminium and steel and has the second-largest coal reserves in the world. Amid this trove of underground resources lie the crown jewels: the largest reserves of natural gas in the world and the eighth-largest reserves of crude oil. The outsized importance of oil and gas production in Russia to the country’s economy has led the
“The global aluminium industry has turned a corner” - Oleg Deripaska, CEO of Russia’s Rusal. Kremlin to take a stronger hand there than in other commodities. Russia’s two largest energy producers – gas giant Gazprom and oil champion Rosneft – are both majority state-owned. But many of the large Russian extractive firms outside of oil and gas are privately held by owners who have also sold significant minority stakes to international investors via stock exchanges in Moscow, London and New York.
Big steel Efforts have been underway among Russia’s big steelmakers to sell assets, cut costs and refocus their efforts domestically. To be sure, net profits are less frothy than another indicator of underlying profitability, EBITDA (earnings before interest, tax, depreciation and amortisation). Novilipetsk Steel, commonly known as NLMK, became the world’s most profitable large steelmaker in August after cutting costs. According to Bloomberg data, the firm’s most recent results yielded an EBITDA of $584 million for the second quarter, a margin of 21 per cent, beating 24 of its biggest peers. Severstal, the steel and mining firm majority-owned by billionaire Alexei Mordashov, had previously featured in that top 25,
with a 19 per cent margin, according to Bloomberg data. This summer, Severstal reached agreements to sell its North American assets in Columbus, Miss., and Dearborn, Mich., for a total of $2.3 billion, and used $1 billion of the funds to pay a special dividend. Meanwhile, Mechel, the indebted coal and steel producer, is considering selling $2 billion to $3 billion worth of assets to help pay off over $8 billion in debts, its CEO Oleg Korzhov told Moscow’s Vedomosti newspaper in September. Mechel is in talks with state banks to restructure its debt. Russian news agency ITAR-TASS has reported that the government has approved two bailout schemes that would allow the firm to avoid bankruptcy.
Aluminium rising Rusal emerged as Russia’s champion of aluminium after consolidating the assets of smaller com-
petitor SUAL and of international commodities trader Glencore in 2007. Today, Rusal operates in 19 countries on five continents. According to Rusal, global consumption of aluminium rose in the first half of 2014 to 27 million ton-
nes, up 6 per cent in comparison with the first half of 2013. The fastest growth in demand for aluminum was in China (13 per cent), Japan and South Korea (10 per cent), and Central and South America (5 per cent).
“The completely gloomy picture of the aluminium market at the beginning of the year has changed today to a rapid price increase,” says Ilya Balakirev, chief analyst at Moscow brokerage UFS IC.
INTERVIEW VLADIMIR POTANIN
'Business is not a sport' Vladimir Potanin, co-owner and general director of the world’s largest nickel producer, Norilsk Nickel (Nornickel), and who, according to Forbes, is worth $12.6 billion, spoke with RBTH about the company’s departure from US and Australian markets, as well as his drive to improve the firm’s efficiency. In the last year you successively sold some assets in the US and in Australia. Why did your company leave these markets? Was it part of a larger strategy? We are actively getting rid of unprofitable assets, which were dragging the company backwards.That is why we completely left the investment projects in Australia, keeping only one Australian licence, and are currently working to leave the African projects. Selling these assets was planned long before the beginning of the political turbulence in our long-term strategy. How much has the political turbulence influenced Norilsk Nickel’s work? We are a private and a law-abiding company, we are incorporated in all the regulatory mechanisms and we are represented on international stock exchanges. The company’s production is very important for the economy. In particular, Nornickel supplies Europe with nickel for the steel industry. The political tension we are experiencing should not affect the company’s activity, since the company is deeply integrated in international economic processes. Economic sanctions damage all the participants in economic rela-
tionships and always signify defeat for politicians. If politicians are obliged to impose sanctions, that is, decrease the value of assets located on the perimeter, it means they are not doing something right.
HIS STORY
Vladimir Potanin GENERAL DIRECTOR, NORILSK NICKEL
In addition to his business interests, Moscow native Potanin works to improve corporate governance in Russia through the National Council on Corporate Governance. He is also a patron of the arts and sits on the board of the Solomon R. Guggenheim Foundation.
Nornickel feels comfortable in the current conditions and we do not expect that sanctions will affect us.
How much is the company tied to European and American consumers? What damage will the expansion of sanctions bring you? Nornickel actively sells its products in Europe and the US; for example, we supply palladium for the production of car exhaust systems. Palladium is used for the production of carbon dioxide emission traps, which is a small, but nevertheless important element in automobile production. If a car that costs $30,000 does not have a $1,000 catalytic converter, it cannot be sold. Nornickel feels comfortable in the current conditions and we do not expect that sanctions or any other political-economic measures will affect us. However, we do have a plan B, which foresees the diversification of currencies in which we keep our resources, as well as the reorientation of our company towards Asian markets in case of problems in other markets. What made you create the 2013 Norilsk Nickel strategy? All companies need a strategy that is clear for investors. The strategy helps people judge how efficiently the management is able to lead the company. The 2013 strategy mainly intended to concentrate on first-rate assets and the increase of management efficiency.
In the context of the new strategy, which achievements do you think are the most important? According to the EBITDA indicator, we demonstrated a profitability of 44 per cent, which means that only BHP Billiton (48 per cent) came in ahead of us. Moreover, we witnessed a significant improvement in terms of contracts with banks and rating agencies, as well as in terms of restructuring bank credits. In particular, we increased credit periods, excluded mortgage loans and increased the flexibility of our portfolio management. You said that Norilsk Nickel is the second most efficient company in the world. Do you plan on surpassing BHP Billiton and becoming the first company, and if so, what do you need to do to realise this objective? Business is not a sport where there is no room for those who don’t come first. My friend, the worldfamous hockey player Vyacheslav Fetisov, said that the first step off the pedestal is down. Long-term planning always has two alternatives. Depending on how we develop our mining policy, we will either have a big volume of marketable products with a slightly smaller EBITDA margin, or the contrary. Now we have set a target to keep our profitability at 40 per cent for first-rate assets. Business is not a sport, but the earning of money, and BHP Billiton should not be relaxing. Prepared by Alexei Lossan
RUSSIA BEYOND THE HEADLINES www.rbth.com
Special Report
GULF NEWS_WEDNESDAY_NOVEMBER_26_2014
05
IN FIGURES
VIEWPOINT
14%
Russian coal will provide fuel for Asia's growing economies
is the share of the world’s nickel produced by Russia’s Norilsk Nickel. Located in the world’s northernmost city, above the Arctic Circle, the company also produces 41% of the world’s palladium, 11% of its platinum and 2% of its copper.
1.3 billion dollars is how much Russia’s Alrosa, the world’s largest diamond miner, raised in its IPO last year. Alrosa controls 26% of the world’s total diamond production. Its rival, South Africa’s DeBeers, produces 22%.
24%
is how much the average price of gold decreased from 2012 to 2013 after a decade of growth. The drop is bad news for Russia’s gold producers, who have been ramping up production.
Sparks fly at Russia’s Severstal steelworks. The company sold its North American assets this summer.
Change in price of Russian commodities over the past 5 years
Anna Grinetz SPECIAL TO RBTH
M
uch has been made of the potential synergy between Russia’s colossal oil and gas reserves and Asia’s fast-growing, energyhungry economies. Less has been said about the potential for Russian coal exports to Asia, but anyone interested in understanding global energy markets should take note of the significant potential for development there. Today, Russia is the world’s sixth-biggest coal producer, with the planet’s second-largest coal reserves, according to the US Energy Information Administration. Some 352 million tonnes of coal are mined in Russia every year. About 40 per cent of that is exported. The world coal market recently saw a drop in prices as the rapid development of shale gas in the US, and the resulting drop in gas prices, led to the exclusion of a large quantity of coal from global markets. As a result, prices in the world coal market hit a three-year low in 2013, falling to $72 and $99 per tonne for thermal and coking coal respectively. However, the change opens new doors for Russia’s coal companies, including the possibility of attracting new investors. By 2030, the Russian government aims to boost production volume to 530 million tonnes, and increase exports by 70 million tonnes. A total of $5.4 billion (250 billion rubles) will need to be allotted from the state budget to meet this objective. The goal here is, in part, to lower the amount of natural gas that is used for domestic consumption and replace it with an increase in coal and renewable energy. Sales of natural gas to Europe are a key Russian economic mainstay, and reducing domestic use would free up gas for export. Consequently, the quantity of coal in Russia’s domestic energy consumption should increase from 26 per cent in 2014 to 36 per cent in 2030. In addition, major projects in the coal sector will be realised with foreign investments. It is expected that by 2030, the amount of coal exported will rise to 44 per cent. But Europe, Russia’s traditional natural gas export market, is unlikely to be the target for these new supplies.
Currently, some 90 per cent of Russia’s coal is mined in regions far to the east of Europe but relatively close to the countries of the Pacific rim. What’s more, 99 per cent of the reserves likely to be used for increasing production in the future are likewise concentrated in Siberia and the Far East. Consequently, Russia is eyeing Asia and the Pacific countries as the prime markets for these new exports. Russia’s biggest clients for coal have long been South Korea and Japan. But these were recently surpassed by China, which in 2013 imported roughly 12 million tonnes. Asian countries will guarantee long-term demand for Russian coal: consumption in these nations is anticipated to grow and should total 80 per cent of world coal consumption by 2030. Russian authorities believe that Russia may be able to grow its share of this market from the present 6 per cent to 15 per cent by 2030. Russian companies are interested in attracting foreign investors, since potential coal deposits are frequently located in distant regions with an underdeveloped infrastructure. The Russian coal sector can already boast successful examples of mining projects in collaboration with Asian companies.
Coal consumption in Asian nations should total 80 per cent of world coal consumption by 2030. In September 2010, Russia and China signed a memorandum of understanding and cooperation in the coal sector. The Chinese coal company Shenhua and Russia's Rostopprom and Inter RAO UES agreed to develop the Ogodjinsky deposit in the Amur Region in Russia’s Far East. Another example of collaboration is the 2013 agreement between Russia’s En+ and Shenhua to develop the Zashulansky coal deposit. Both projects are aiming to supply the Russian domestic market, as well as to export the coal to China, which would guarantee the demand for the deposit’s resources. Anna Grinetz is a senior analyst at the Russian Academy of Sciences' Centre of Raw Material Economy.
Energy Deal between Rostec and Shenhua Group opens way for development of Russian coal industry in Far East
Russia and China sign agreement to develop Siberian coal The Russian state technology conglomerate Rostec, a target of US and EU sanctions, has agreed to explore and develop coal deposits in Siberia and the Far East with China’s Shenhua Group. DAVID MILLER AND LEONID KHOMERIKI SPECIAL TO RBTH
Rostec, the Russian state-controlled technology and defense concern targeted by Western sanctions, has signed an agreement with China’s Shenhua Group, the world's largest coal producer, to explore and develop coal deposits in Russia’s Siberia and Far East regions. The total cost of the project, including the construction of coalfired power plants that will sell electricity in Russia, China and other Asian countries, will be $8-10 billion, Rostec said in a statement posted on its web site. Moscow-based Rostec controls a vast network of hi-tech opera-
tions in both the civil and defense sectors, including the company that manufactures Russia’s famous Kalashnikov rifle. The Rostec-Shenhua deal comes at a time of greater cooperation between Russia and China in the energy sphere, spurred on by increasingly tense relations between Russia and Western countries. In May, Russian natural gas exporter Gazprom and the China National Petroleum Corporation (CNPC) ended years of negotiations and inked a historic 30-year agreement worth $400 billion to deliver gas to China. Rostec is one of the firms targeted by US and European Union sanctions, which aim to limit the company’s access to western financial markets. In a statement responding to the US and EU sanctions, Rostec accused EU politicians of escalating the conflict, and said that the measures would hinder both sides.
“Those who impose sanctions should understand that such cooperation is double-sided,”the company said in a statement. “Both sides will suffer as a result of a breakdown.” Rostec’s chief executive, Sergei Chemezov, is also personally targeted by the sanctions, which freeze any assets he might hold abroad and restrict his ability to travel. Rostec has said the sanctions won’t affect any of Mr. Chemezov’s personal property. “All Mr. Chemezov’s property and funds are held in Russia,” the company said in a statement on its website.“In this regard, the EU sanctions will not have a significant impact.”
Developing eastern coal The Rostec-Shenhua agreement was signed on Sept. 4 by Mr. Chemezov and Yuzhuo Zhang, chairman of the Shenhua Group Corporation. The companies aim to
explore and develop the Ogodzhinskoye coal deposit, located in the Amur Region. Coal reserves at the mine are estimated to be 1.6 billion metric tonnes. Rostec expects coal production to start in 2019 with an annual output reaching 30 million tonnes. The commodity will be largely exported to the Asia-Pacific region, especially China. Rostec and Shenhua also plan to build a marine coal terminal at Port Vera in the Primorsky Territory with an annual capacity of 20 million tonnes. The construction is slated to begin in 2015 and Port Vera will be put into operation in 2018-2019. “The project to construct Port Vera will help implement the development strategy for the Far East and the Russian coal industry. It will greatly expand the access of Russian coal companies to sales markets in the Asia-Pacific region,” said Andrei Korobov, CEO of RT
Global Resources, the Rostec subsidiary that oversees commodity and infrastructural projects in Russia and abroad. The agreement also foresees building high-voltage transmission lines to China, as well as social and transport infrastructure. According to Chemezov, the project will help deal with the issue of power shortages in Russia’s Amur Region and China’s northern regions and meet the electricity demand of those territories. The project may also create 10,000 new jobs.
Prospects for Russian coal The Russian strategy for developing the coal sector until 2030, as mapped out by the country’s Energy Ministry, foresees transferring the centre of production to Russia’s eastern regions, where Russian coal, thanks to short transportation distances, can compete in Asian markets, which
now total 80 per cent of the world's consumption. “The Asian and Pacific Ocean regions are still the world’s locomotive for driving coal imports, while Europe on the whole does not appear to be a potential consumer,” says Alexander Grigoriev, Director of Research at the TEK Institute of Natural Monopoly Issues. “Nevertheless the price situation in the last 12-18 months remains rather depressing: prices for thermal coal are at a level of about $80 a tonne. This places Russian exports at the limits of profitability, and only the devaluation of the ruble this year helped ease the position of Russian exporters,”says Grigoriev. According to Kharek Avakyan, financial analysis director at BPS Consult, says that operating profitability in Russia exceeds 10 per cent. "With all the costs the sector is just balancing on the edge of profitability,” he says.
06
RUSSIA BEYOND THE HEADLINES www.rbth.com
Travel
GULF NEWS_WEDNESDAY_NOVEMBER_26_2014
Destinations RBTH has compiled a list of places that can bring success, happiness and love
Charmed life: Russia's lucky locations
Arzamas, Nizhny Novgorod Region
rbth.com/travel
Mount Svetelka, Samara Region
LORI/LEGION MEDIA(3)
Pilgrims and tourists alike come to the old merchant town of Arzamas in the Nizhny Novgorod Region while visiting the holy spring in the nearby village of Diveyevo. Arzamas is well-known throughout the region for its magnificent Resurrection Cathedral, built to commemorate Russia's victory over Napoleon in the War of 1812. According to the“Index of Happiness”sociological project, Arzamas was among the most joyful cities in Russia in 2013. It is also worth noting that the name Arzamas is translated from the Mordovian language as“the most beautiful place on earth.”
Russians love omens and fairytales, so it should come as no surprise that many places in Russia are thought to bring good luck, happiness and love. Many say that a journey to such a place can end up being a turning point in one’s life. Here are some of the most charmed corners in Russia.
Mount Svetelka, Samara Region to gain strength in pursuing their dreams. According to legend, to fulfil a wish you should take five rocks without chips or scratches to the summit of the mountain and cast them in five different directions, symbolising love, health, the fulfilment of dreams, luck and financial prosperity. If a rock falls straight and does not roll, your wish will be granted.
© RIA NOVOSTI
Located in the Samara Region near the Volzhsky Utyos Sanatorium, Mount Svetelka’s energy is often compared to that of Stonehenge or the Mayan Pyramids. People who have visited Svetelka have remarked that they have easily covered many kilometres of trails through forests, and climbed mountains, without experiencing shortness of breath or fatigue. Many come to find inner peace and
Rural house with wood carvings in Kolyvan, Novosibirsk Region.
Resurrection Cathedral in the city of Arzamas, Nizhny Novgorod Region.
Diveyevo, Nizhny Novgorod Region
It is believed that the ancient village of Kolyvan and its residents are under the protection of saints. The village is listed in the register of Russia’s historic settlements and attracts many pilgrims. The heart and symbol of Kolyvan is the rural church of Prince Alexander Nevsky, in the grounds of the Intercession of Alexander Nevsky Convent. Travellers and residents believe that if one treats the holy Apostle Peter with pure thoughts then he will provide help in business and one’s personal life. Residents lovingly call Kolyvan “the city by the water” and the
local river is famous for its fishing spots. It is situated on a hill, as if open to all guests. The Moscow-Siberia highway, once the longest road in tsarist Russia, was located here. It is noteworthy that the Altai Mountains also have their own mystical place called Kolyvan, surrounded by pine forests and clean air. This Kolyvan is best known for its concentration of stone-carving specialists, who have given the world many beautiful works of art, with several decorating the Hermitage in St. Petersburg, as well as palaces and parks.
From Russia’s main Christmas tree and chime bells on Red Square to the holiday holid cheer ringing in Moscow’s pedestrian zones, RBTH tells you where to have New Year’s Eve fun in the Ru Russian capital.
TASS
Kolyvan, Novosibirsk Region Bronze statue of a border guard with a dog at the Ploshchad Revolutsii metro station in Moscow.
Believers come to bathe in the holy St. Seraphim of Sarov spring in Diveyevo, NIzhny Novgorod Region.
Hippo in St. Petersburg; border guard dog in Moscow The garden in the courtyard of the Philosophy Department at St. Petersburg State University (11 University Embankment) can also bring you good luck. Here you will find a hippo named Tonya, which embodies power and prosperity. According to tradition, the hippo can help you find a soulmate: in
order to find a groom, hold Tonya’s right ear, and to find a wife, hold her left. Muscovites go searching for good luck at the modest-looking bronze statue of a border guard with a dog at the Ploshchad Revolutsii (Revolution Square) metro station. For more than 70 years many have believed that rubbing
the dog’s nose would bring good fortune. Seeing how smooth the dog’s nose has become, it seems that more than a few believe it. Metro staff say that during the semester lines of students often form, hoping to touch their assignments to the dog’s nose and thereby pass their exams.
People travel to the village of Diveyevo in the Nizhny Novgorod Region to purify their souls in the holy spring near the tomb of St. Seraphim of Sarov and to come under the protection of the Blessed Virgin. Indeed, Diveyevo is considered her fourth and final residence. The relics of Saint Seraphim of Sarov are also kept in Diveyevo. It is believed that here John the Evangelist, one of the 12 Apostles and author of the Gospel of John, himself served as a patron. The healing properties of this spring are known all over the world. Local residents say nearby Lake Svetloyar has healing properties and that those who look into it and see the reflection of the gold church domes will find happiness.
THE NEW YEAR OF YOUR DREAMS: LET YOURSELF GO ON RED SQUARE... You can come to Red Square early, in the middle of the day, to walk along the luxuriously decorated halls of the GUM shopping mall, plunge into the festive atmosphere, and buy souvenirs. The bright lights of Russia’s main Christmas tree, the cheerful holiday lighting of St. Basil’s Cathedral, fireworks, and an enthusiastic “Hurrah!” from thousands of people in the crowd all make for an unforgettable beginning to the new year. Hint: after finding the right spot on Red Square, you can record a video message in front of the chimes (president-style) and send it to your friends and relatives who are seeing in the New Year across the world.
T R AV E L 2 M O S C O W. C O M PEDESTRIAN STREETS: FAIRYTALE ATMOSPHERE, CARNIVAL PARADE As early as the middle of December, Moscow's pedestrian streets – Arbat, Kamergersky Lane, Nikolskaya Street, Stoleshnikov Lane – are transformed into vivid, colourful illustrations of a New Year’s fairytale. Concerts, souvenir and food markets, mulled wine, and hot food – you can have a great time both at night and during the day. On New Year ’s Eve, these streets in the capital will be just as packed as Red Square, and everyone can participate in the carnival parade. SHOPPING, ENTERTAINMENT AND FROSTY FUN AT OUTDOOR MARKETS You can celebrate the New Year in full swing in the centre of Moscow at the festive markets. Wooden huts with Russian shawls and scarves, Zhostov trays, and Tula gingerbread await visitors, as well as chalets with mulled wine, mead and crepes, toys, and New Year souvenirs from different cities in Russia and all over the world. Guests can visit a gnome town and a fairytale land of Christmas angels or stop by a bazaar with holiday souvenirs from all over Russia at the Journey to Christmas festival. You can even run into famous characters from Russian folklore – Emelya and his famous mobile oven and the hosts of the holiday, Grandfather Frost and Snegurochka. MOSCOW SKATING RINKS: ROMANTIC SETTINGS, COSY CAFES ON ICE For those who want their New Year celebrations to be more active, there are skating rinks all over Moscow. You can glide across the ice at the country’s main skating rink near GUM on Red Square to the sound of chimes, drink champagne, eat tangerines, and watch Russian celebrities visiting the square with their families. The skating rink in the middle of a wooded area in the Hermitage Garden is considered to be the most romantic, while the rink at Gorky Park (which, by the way, is the largest skating rink in Europe) has the cosiest cafes on ice. Moscow ponds also turn into skating rinks in the winter – you can skate at the legendary Patriarch’s Ponds or at Chistiye Prudy. PARK YOURSELF IN THE PARKS: FUN FOR CHILDREN AND ADULTS Every year, parks in Moscow put together programmes for children and adults, including light shows, performances based on old Soviet holiday musicals such as Carnival Nights, or Christmas ornament workshops. Kolomenskoye Park offers horseback rides, Sokolniki hosts snowmanbuilding contests, and Grandfather Frost and Snegurochka can be found at every park in Moscow.
RUSSIA BEYOND THE HEADLINES www.rbth.com
Opinion
GULF NEWS_WEDNESDAY_NOVEMBER_26_2014
07
PLAYING BY THE RULES AND WITHOUT RULES biggest reaction. After the Cold War the US's world domination became a self-evident truth and any transformation of the global order was viewed as a technical correction of this position, not its change. Theoretically, everyone knows, of course, that there are no eternal hegemons. Charles Krauthammer, who in 1990 introduced the concept of "a moment of unipolarity," that is, a period in which America could do whatever it
Fyodor Lukyanov ANALYST
V
In the Valdai speech there was a touch of fatalism in Putin's tone. He no longer counts on the US to change.
TATIANA PERELYGINA
ladimir Putin has been taking on an increasingly confrontational tone toward the United States in the last few years in his speeches. The Russian president openly disputes the legitimacy of the role of the US and frequently refers to the need for a multipolar framework as an instrument for global policy. Is there a coherent philosophy and strategy behind Putin’s approach, and if so, what is it? The speech that Vladimir Putin gave in late October at the Valdai Club [an annual discussion forum at which international experts debate the role of Russia in global affairs – RBTH] was judged to be very harsh by most commentators. If we were to exclude a couple of scathing metaphors, such as "master of the taiga" (referring to Russia) and the geopolitical "nouveau riche" not being able to deal with the enormous wealth cast upon them (referring to America), in essence the speech was more that of an analyst rather than a publicist. Then why such a reaction? The fact that the Russian president does not accept contemporary American policy is no news. He has been speaking about this for the last several years. It is just his tone that has changed. During his first presidential term, Putin invited America to review its course, as common threats outweighed the contradictions. During his second term he warned that Russia would not allow for its opinion to be ignored. During his 2012
electoral campaign, Putin was perplexed, trying to understand Washington's policies, which seemed to be purposefully destroying the international order, rather than strengthening it. In this year'sValdai speech there was a touch of fatalism in the president’s tone. He no longer counts on the US to change, and simply proclaims the destructiveness of its activities. Perhaps it is this lack of expectations that has created the biggest effect and made people interpret his speech in an exclusively negative light. Meanwhile, Putin's core undertaking is rather positive, since it echoes the principal theme of the Valdai meeting: the search for new
rules of international intercourse, which would permit everyone to move to another phase of development. The world is still going through a phase of virtual erosion and now even through a phase of a rapid disassembly of the world order that was created in the second half of the 20th century. The construction of the new world order, which was spoken about profusely 25 years ago, has not led to success. If the process began as the aspiration of two superpowers to find a common model (this order was envisioned by Mikhail Gorbachev, who was the first to mention it), then with the collapse of the USSR the only remaining ‘architect’ is the US. How-
RUSSIA CAN RIDE OUT THE CHEAP OIL CRISIS Bryan McDonald JOURNALIST
TATIANA PERELYGINA
T
he last time Russia faced financial ruin was in August 1998 when the ruble collapsed against the dollar after President Boris Yeltsin's administration defaulted on domestic debt payments and froze repayments to foreign creditors. Within weeks the ruble exchange rate against the dollar collapsed from around six to 21. Ordinary people, who kept their savings in rubles or who had dollar-denominated mortgages and loans, faced ruin. And yet within a few years the Russian economy was booming as never before with annual growth in double digits. WhenVladimir Putin took power in 1999 he was faced with a state that was spiralling out of control, toiling under the weight of a failed neoliberal economic experiment. Already humiliated by the collapse of the USSR, poverty-stricken Russia was in an execrable state. Putin stopped the rot with a simple yet effective 13 percent flat rate income
ever, the US has not been able to manage world processes; actually the opposite has happened. For the sake of fairness it must be said that the desired multipolar world that is evolving today does not promise order or harmony or equilibrium. Moreover, as the Russian president said, this multipolar world is only exacerbating global anarchy, since more and more players are now appearing, but there are still no rules. The thing that separates Vladimir Putin from leaders of other important countries is that he not only condemns and criticises America's policies (although not many leaders do so), but he systematically denies its role. And this provokes the
vals stood still or declined. And the ruble is in freefall against foreign currencies. Europe is also suffering and will likely eventually be forced to insist on the lifting of sanctions that barely affect the US but are damaging EU economies almost as much as they hurt Russia. The ruble collapse scares Russians. The new middle class have become accustomed to their annual foreign holidays, unthinkable not so long ago. Thailand, Turkey and Spain are among the top destinations for Russians, mirroring British and German tourist colonisation of Spanish and Greek beaches 30 or 40 years ago. And it is a two-way street; tourist resorts will be reeling at the shock of losing Russian custom.
Oil prices staying low tax that went a long way towards tackling a culture of mass tax avoidance. Later, he re-nationalised key industries and broke the back of the 90s oligarchs. Right on cue, due to external factors, oil prices began to rise and the Russian phoenix spread its wings. Just as it looked like goodnight Moscow, the country stepped back from the brink. Is it now possible that the Kremlin’s attachment to the wonders of black gold could be its undoing? Are outside players exploiting the country's depen-
RUSSIA BEYOND THE HEADLINES IS PRODUCED AND PUBLISHED BY ROSSIYSKAYA GAZETA (RUSSIA), WHICH TAKES SOLE RESPONSIBILITY FOR THE CONTENTS. INTERNET ADDRESS WWW.RBTH.COM EMAIL UAE@RBTH.COM TEL +7 (495) 775 3114 FAX +7 (495) 988 92 13 ADDRESS 24 PRAVDY STR, BLDG 4, OFFICE 720, MOSCOW, RUSSIA, 125 993 YEVGENY ABOV PUBLISHER PAVEL GOLUB CHIEF EXECUTIVE EDITOR NIKOLAI SURKOV EDITOR MUNZER HALLOUM EDITOR ALASTAIR GILL GUEST EDITOR
dence on oil revenues to break it? Neither notion is convincing.
Ruble in freefall First, the bad news: Moscow-Washington relations are at the lowest point since the Brezhnev era of the 1970s. Capital flight from Russia is at record levels and is forecast to reach $128 bln this year. Economic growth has stalled at close to zero. That’s sobering for a country that once had double-digit growth and more recently was stable at around 4 per cent while ri-
ANDREI ZAITSEV HEAD OF PHOTO DEPT ANDREI SHIMARSKY ART DIRECTOR MILLA DOMOGATSKAYA HEAD OF PRE-PRINT DEPT TO ADVERTISE IN THIS SUPPLEMENT CONTACT SALES@RBTH.COM © COPYRIGHT 2014, FSFI ROSSIYSKAYA GAZETA. ALL RIGHTS RESERVED. ALEXANDER GORBENKO CHAIRMAN OF THE BOARD PAVEL NEGOITSA GENERAL DIRECTOR VLADISLAV FRONIN CHIEF EDITOR. ANY COPYING, REDISTRIBUTION OR RETRANSMISSION OF ANY OF THE CONTENTS OF THIS
As for oil prices, the idea that plunging prices for crude are a nefarious US/Saudi conspiracy to bring down Putin's Kremlin is nonsense - they are a consequence of a boom in shale oil in the US and falling demand in China and Europe. If the Saudis were scheming, ISIS would be their target and Russia’s turmoil would be a lucky side effect from their perspective. Riyadh has sufficient cash reserves to keep the price of a barrel around $80 for some years to come. As ISIS sells its oil at a large discount, low prices mean it can’t cream off a profit at the wells it controls in
PUBLICATION, OTHER THAN FOR PERSONAL USE, WITHOUT THE EXPRESS WRITTEN CONSENT OF ROSSIYSKAYA GAZETA IS EXPRESSLY PROHIBITED. TO OBTAIN PERMISSION TO REPRINT OR COPY AN ARTICLE OR PHOTO, PLEASE PHONE +7 (495) 775 3114, OR EMAIL UAE@RBTH.COM WITH YOUR REQUEST. RBTH IS NOT RESPONSIBLE FOR UNSOLICITED MANUSCRIPTS AND PHOTOS. AN E-PAPER VERSION OF THIS SUPPLEMENT IS AVAILABLE AT WWW.RBTH.COM
wanted, also warned that this would not last forever. He actually foresaw the duration of the "moment": 25-30 years. But in practical terms America's superiority was, and is, so great that other models with which Washington could have been ‘one of’ or even ‘first among equals’ were not taken into consideration. Strictly speaking, the US's bluntly negative view of what Putin is saying and doing is justified. Washington thinks that the Russian president consistently casts doubt not on its policies, but on its special rules. Or rather, he is recreating the classical situation in which a contender issues a challenge to the hegemon, intending to grab world superiority. Consequently, this contender must be restrained; he must not be allowed to strengthen himself.
The paradox is that Putin constantly says that Russia does not want global domination, it is not seeking to shape the world to itself and it will not enter a race for greatness. This point was made in theValdai speech, as well as in Putin's other appearances. The Russian president has a very realistic idea of his country's potential: no less than it is, but not any greater. However, Putin refuses to play by America's rules - both regarding conceptual declarations and on a practical level. Russia's moves in 2014 - primarily the decisive actions in Crimea - show that Moscow will follow its interests independently of what others think. But one other move has not been made thus far: an appeal to the rest of the world.Vladimir Putin's Valdai speech, as many others, was another conversation with the West, and above all with the West. In the new world, in the one that the Russian president depicts with such broad strokes, it is vital to engage in a profound dialogue with countries and regions that do not oppose the West, with those that are simply not part of it. The discussion about new rules cannot be conducted along the lines of the former, Cold War opposition. The world is more democratic today and the outcome of the global process depends much more on the ‘vast world masses’. It is there that the agitation should be carried out. The author is editor-in-chief of the journal Russia in Global Affairs First published in Russian in Rossiyskaya Gazeta
Syria and Iraq. Less revenue means less firepower for its ‘holy war’. Russia’s problem is that Urals Crude has dived from $115 to $83 a barrel since June. Deutsche Bank claims that, due to sharply increased spending in recent years, Moscow needs $100/barrel to balance its budget.The Kremlin’s failure to diversify the Russian economy could now be coming home to roost. However, there are reasons to believe that to a certain extent Russia can dodge the oil bullet.
Healthy cash reserves A falling ruble may be a disaster for ordinary households, but it has a positive impact on the Russian government's budget because income from oil is in dollars and domestic expenditure in rubles. This eases the pressure on the Kremlin's coffers. And the Saudis aside, other Middle Eastern oil producers can’t sustain lower yields over a period of years, while the US shale boom, which is keeping unemployment there in check, can’t cope with prolonged exposure to sub-$90 prices. Russia has healthy cash reserves and can bear the economic pain for a while yet. Bryan MacDonald is an Irish journalist who focuses on Russia and international geopolitics. rbth.com/41337
LETTERS FROM READERS, GUEST COLUMNS AND CARTOONS LABELLED “COMMENTS”, “VIEWPOINT” OR APPEARING ON THE “OPINION” AND “COMMENT & ANALYSIS” PAGES OF THIS SUPPLEMENT ARE SELECTED TO REPRESENT A BROAD RANGE OF VIEWS AND DO NOT NECESSARILY REPRESENT THOSE OF THE EDITORS OF RUSSIA BEYOND THE HEADLINES OR ROSSIYSKAYA GAZETA. PLEASE SEND LETTERS TO THE EDITOR TO UAE@RBTH.COM
A LOOK BACK AND A LOOK AHEAD TO THE NEW CHALLENGES FACING MOSCOW DOWNLOAD TODAY! $5.99 ON
SPECIAL SUPPLEMENTS AND SECTIONS ABOUT RUSSIA ARE PRODUCED AND PUBLISHED BY RUSSIA BEYOND THE HEADLINES, A DIVISION OF ROSSIYSKAYA GAZETA (RUSSIA), IN THE FOLLOWING NEWSPAPERS: GULF NEWS, UAE ● THE DAILY TELEGRAPH, UNITED KINGDOM ● THE WASHINGTON POST, THE NEW YORK TIMES, THE WALL STREET JOURNAL, UNITED STATES ● SYDNEY MORNING HERALD, THE AGE, AUSTRALIA ● LE FIGARO, FRANCE ● HANDELSBLATT, GERMANY ● EL PAÍS, SPAIN ● LA REPUBBLICA, ITALY ● LE SOIR, BELGIUM ● DUMA, BULGARIA ● POLITIKA, GEOPOLITIKA, SERBIA ● ELEUTHEROS TYPOS , GREECE ● ECONOMIC TIMES, NAVBHARAT TIMES, INDIA ● MAINICHI SHIMBUN, JAPAN ● CHINA BUSINESS NEWS, CHINA ● UNITED DAILY NEWS, TAIWAN ● LA NACION, ARGENTINA ● FOLHA DE S. PAULO, BRAZIL ●EL OBSERVADOR, URUGUAY ● JOONGANG ILBO, SOUTH KOREA. EMAIL INFO@RBTH.COM. MORE DETAILS AT HTTP://RBTH.COM/ABOUT
RUSSIA BEYOND THE HEADLINES IS PUBLISHED BY RUSSIAN DAILY NEWSPAPER ROSSIYSKAYA GAZETA. ITS PRODUCTION DOES NOT INVOLVE THE EDITORIAL STAFF OF GULF NEWS. RBTH IS FUNDED THROUGH A COMBINATION OF ADVERTISING AND SPONSORSHIP TOGETHER WITH SUBSIDIES FROM
RUSSIAN GOVERNMENT AGENCIES. RBTH’S EDITORIAL VOICE IS INDEPENDENT. ITS OBJECTIVE IS TO PRESENT, THROUGH QUALITY CONTENT, A RANGE OF PERSPECTIVES ABOUT RUSSIA AND RUSSIA’S PLACE IN THE WORLD. PUBLISHED SINCE 2007, RBTH IS COMMITTED TO MAINTAINING THE HIGHEST
EDITORIAL STANDARDS AND TO SHOWCASING THE BEST OF RUSSIAN JOURNALISM AND THE BEST WRITING ABOUT RUSSIA. IN DOING SO, WE BELIEVE THAT WE ARE FILLING AN IMPORTANT GAP IN INTERNATIONAL MEDIA COVERAGE. PLEASE E-MAIL UAE@RBBTH.COM IF YOU HAVE ANY
QUESTIONS OR COMMENTS ABOUT OUR OWNERSHIP OR EDITORIAL STRUCTURE. RBTH PUBLISHES 29 SUPPLEMENTS IN 23 COUNTRIES WITH A COMBINED READERSHIP OF 33 MILLION AND MAINTAINS 19 WEBSITES IN 16 LANGUAGES.
russia-direct.org/ebook
08
RUSSIA BEYOND THE HEADLINES www.rbth.com
Feature
GULF NEWS_WEDNESDAY_NOVEMBER_26_2014
Crafts How the finest Russian blacksmiths forged and honed their blades
Travel Life in Russia's coldest inhabited spot
The lost miracle of Russia’s medieval sword makers
Pole of Cold: lessons in survival from Oymyakon Oymyakon, the 'Pole of Cold', is the coldest inhabited place in Russia. It is difficult to believe that people live - and thrive - in such conditions, yet the locals are known for their longevity.
This dirk (top) was presented to Emperor Nicholas II as a gift by the German emperor, King of Prussia Wilhelm II, in 1901 in Danzig (now Gdansk, in Poland)
JONATHAN HOEFLER LOREMASER
The village of Oymyakon, located in Yakutia, in the northeast of Siberia, is full of contradictions. The water in the Oymyakon river does not freeze. But this is not the result of magic: the ground here is permanently frozen to a depth of 5,000 feet; under the pressure from the frozen earth, the ground water escapes to the surface. In the language of the local people, the Tungus, "oymyakon" means“unfrozen river” or “the place where fish spend the winter." There is no wind here; the weather is always sunny. Small shaggy horses roam the tundra. In winter, their thick coats grow to a length of four inches, and the mane covers the shoulders as well as the neck. At a temperature of -75 degrees Celsius, a person's unprotected face can become frostbitten in seconds, even from a random gust. Mercury freezes in the thermometer and boiling water thrown into the air will form a snow cloud. Most cars do not start in this kind of weather and others, such as the Russian-made Ural and UAZ models, can only be heated using an open-flame blowtorch. Local souvenirs are emblazoned with the number -71.2 – the temperature in Celsius recorded here in 1926 by Sergei Obruchev and considered the lowest point to which the temperature could drop. But in such seemingly inhuman conditions, the local population has managed to find a compromise with nature. Local residents enjoy clean air and water, an active lifestyle and healthy food. Their main diet is fish, horsemeat and dairy products. They compensate for the lack of fruit by collecting wild berries. Andrei Danilov, who has lived all of his life as a reindeer breeder, is 102. Houses are no longer made of reindeer skins, so Danilov sleeps in a canvas tent in the frost. His father died at age 117, and his mother at 108. Danilov’s friends, Aryan and Afrosinya, live in a yurt.
Blacksmith Alexander Bychkov makes designer steel using Damascus steel technology. Suzdal, 2006.
ALEXANDER VERSHININ
Russian chronicles are heavy with references to swords. Russian princes’ men-at-arms were buried with their trusty blades, and Prince Svyatoslav of Kiev famously cast his sword into the Dnieper River to deny it to the enemy. Slav swords were prized around the world. Arab scribes rated them alongside Frankish examples above any other in Europe, and Eastern admirers even believed Russian swords to be“miraculous", possessed of magical powers. Russia was the first country in Europe after Charlemagne’s medieval empire to set up the organised production of blades. Bearing the individual blacksmith’s mark of quality, the Russian sword was typically around 40 inches (100 cm) long, its blade measuring 2-2.75 inches (5-7 cm) wide and 0.25 inches (6 mm) thick. The tip was not initially sharpened, since a heavy blow was enough to cleave the toughest armour. Swords were sold individually since not every soldier had the necessary skill or strength to wield the heavy blade effectively. Moreover, only the wealthiest
© RIA NOVOSTI
SPECIAL TO RBTH
Russian Emperor Nicholas II (left), King of England George V (centre) and King of Belgium Albert (right). Postcard printed in early 20th century in Russia.
FOLLOW Get the best stories from Russia straight to your inbox
To solve the problem, Russian blacksmiths twisted together steel rods that were then hammered. Repeated ten times, the process yielded a Damascus steel sword with extra strength and flexibility. Long strips of iron were then welded to them to produce a blank blade to finish. Practically corrosion proof, these blades would go blunt but not break and would quickly resume their form if bent. A quality blade was judged by ear, a slight tap resonating long and clear. The sword was also expected to cleanly cut strips of thin fabric in mid-air. In one testimony to their strength and reputation, the Crimean Khan, a renowned connoisseur of weapons in the 15th century, also had a Muscovite prince send him a suit of armour made of Damascus steel. Producing quality swords was much like the precision work of a jeweller. Iron and steel react at different temperatures, demanding incredible skill from the blacksmith. And although they worked with only a hammer and anvil in the 10th century, their swords were still superior to all others. Centuries later, historians and scientists remained sceptical that Slav craftsmen had such refined metalworking skills in the early medieval era. In the late 19th century, a sword made of Damascus steel was found in an ancient burial mound in Kiev, and for more
than 100 years was presumed to have originated in Scandinavia. But after cleaning, the blacksmith’s mark on the blade finally revealed that it had been made in Kiev by the blacksmith Lyudota. In time the Russian sword was transformed, becoming shorter and lighter and being increasingly used not only as a slashing but also a thrusting weapon. From the 15th century, the sword replaced the sabre before evolving into a heavier broadsword-type weapon for cavalry use. The Russian masters produced Damascus steel until the 17th century. The technique was preserved in a workshop on the Volga River that made swords for the early Romanov tsars. Finally, though, the invention of cartridge ammunition in the 20th century brought an end to the sword’s evolution. The secret of Damascus steel receded into the past, leaving behind only individual examples and the memory and legend of these unique blades. Some people even doubted that the technique had ever existed until it could be recreated in the late 20th century using computers and modern lathes. The time of the exquisite Russian sword has long since passed. But today the successors of the ancient blacksmiths still create magnificent examples of edged weapons at the arms factories of St. Petersburg, Zlatoust and Tula.
Read RBTH.COM on your favourite e-reader
DEGREES CELSIUS The coldest temperature ever witnessed in Oymyakon, recorded in 1926.
Recently, at the age of 90, they adopted a baby girl – the couple never had their own children. Now Aryan and Afrosinya raise cattle. According to their account, they have never once in their lives been sick. The couple believe that the cause of their health lies in two local dairy products: hayak and kyorchekh. Hayak in its flavour and colour is reminiscent of fatty oil. The recipe for kyorchekh is similar to ice cream: fresh cow's milk is whipped with berries, partially frozen and converted into cakes. However, the most famous dish in Oymyakon is stroganina, a kind of Siberian sashimi. It is made only from sturgeon, Arctic cisco and broad whitefish that are caught under the ice. A Tungu fisherman kills the caught fish with only one skilfully placed blow and freezes it while constantly straightening the fish; if it is allowed to freeze crooked, it will be difficult to shave. When the frozen fish is brought indoors, it is immediately shaved – the name of the dish comes from the verb strogat', to shave. Shavings have to be removed from the fish in such a way that on each layer there is a thin discontinuous layer of subcutaneous fat; it is this layer which contains the Omega3 acid, which fortifies the heart and slows the ageing process. These dishes cannot be prepared in any of the southern cities, nor can they be imported. They exist only as a part of northern life, along with the blinding sun and the centenarian reindeer breeders.
The cold, dry climate of Oymyakon is conducive to health and long life.
Nine tips for foreign travelers to Russia rbth.com/travel
SHARE YOUR OPINION ON
RBTH.COM/SUBSCRIBE
-71.2
GETTY IMAGES/FOTOBANK
© RIA NOVOSTI
people could afford these swords due to the complexity and cost of working with Damascus steel. For them, a fine example was worth as much as a war horse. Due to its higher carbon content and special forging process, a Damascus steel sword had a distinctive surface pattern and particular strength. It could hack through iron and would not break even if severely deformed. But since the steel did not react well to low temperatures it was not well suited to Russia’s climatic conditions.
The sword has always carried a special status in Russia - it was a formidable weapon and a symbol of power, and the perfection of the medieval Russian masters in its creation had few rivals.
THE NUMBERS
/russianow
/russiabeyond
Happy Holidays to all our readers! RBTH will return to the Gulf News in 2015