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Russia Seeks Energy Hegemony

PJM Bucharest: State-run energy strategies in the former Soviet bloc countries raises questions as to whether capitalism truly won the Cold War. The New European wonders whether Russia may, in the end, again divide and conquer Europe, "not with tanks, but with oil and natural gas."

by
The New European

Bio

September 19, 2007 - 1:00 am

State-owned businesses are inefficient, expensive and, more importantly, subject to political change and decision-making.

Yet the European energy market is mainly state-owned. A perfect environment for the Russian strategy of dividing and conquering Europe, not with tanks, but with oil and natural gas.

Today, September 19, the European Commission is set to put forward today an “unbundling” package, in order to weaken the hold of big energy companies in Europe like Gas de France or E.oN and make the market more flexible and consumer-friendly.

It is also set to restrict access on the European market to foreign, non-EU companies – an attempt to counter Russian state-controlled monopoly Gazprom’s increasing presence not only as a supplier, but also as a shareholder in European companies, transport networks and storage facilities. Russia called the EU strategy a “nearly hysterical reaction” and accused Europe of “economic nationalism.”

Meanwhile, the EU-strategy is hardly set to be “half so radical as a compulsory dismantling,” especially of the opposition encountered in France and Germany, estimates The Economist.

Just like any other strategy that starts with a good idea – like the European decision to open labor markets within the EU, so that service providers from one country could easily enter a market in another country – this energy package is likely to be totally watered down by the time it reaches the national parliaments that need to enact it.

Meanwhile, the EU states will continue to make bilateral deals with Russia, thus cementing Russia’s “superbundling” strategy.

The most-publicized example: Germany and the last-minute-before-the-elections Putin-Schroeder deal regarding a direct pipeline through the Baltic Sea connecting the Siberian gasfields to Germany, bypassing the Baltic countries and Poland.

But Austria is also increasingly Putin-friendly, Belgium and Italy’s Eni too, Hungary, Bulgaria, Greece – just to name a few.

And if it’s not a Russian state giant like Gazprom, it’s their neighboring countries who are imitating the Kremlin strategy: not only as an energy supplier for Europe, but also an owner of strategic energy assets in Europe. Kazakhstan, for instance, run by its “president for life” Nursultan Nazarbaev, has recently managed to buy the largest oil refinery in the new EU-member state Romania, on the Black Sea coast. Now Kazakhstan is competing with Russia for Serbia’s biggest refinery, NIS.

In a free market economy, there’s nothing wrong with takeovers and competing companies. But neither KazMunayGaz, the Kazakh state company, nor Gazprom, Rosneft or Transneft, the Russian gas, oil and transportation state companies are free market players. They are state-owned, politically controlled and act in the manner of monopolies, trying to gain as much control as possible and to shut down any kind of competition. While the Kazakhs haven’t had the chance yet to show their political ambitions in Europe, they seem to be rapidly learning from Russia how to pressure the Western companies drilling in the Caspian Sea Kashagan oil field in order to obtain more stocks.

The Kazakh-Romanian deal also raises some questions regarding privatization in the former Communist countries. The Romanian oil refinery, Petromidia, had been privatized in 2000, to Rompetrol, also a previously state-owned company that was bought in 1998 by a member of the National Liberal Party. Dinu Patriciu, the owner of Rompetrol and later Petromidia, became a senior party member and is a very close friend of the current Prime Minister and his cabinet, for whom the media has come up with the nickname of “petroliberals.”

They are in the habit of influencing the judiciary, issuing “emergency ordinances” that are enacted as laws immediately, thus avoiding the long and uncertain process of parliamentary lawmaking. “Laws with dedication”, as the former Justice minister Monica Macovei called these kind of ordinances, are tailor-made for the political clients of the “petroliberals.”

And in some cases, privately-owned companies are sold again to the state – only this time, they are foreign states, raising questions about the political implications of this transaction.

Romtelecom, the Romanian state telephone operator, has been privatized to the Greek state company OTE. Petrom, the countries’ main oil company, is now part of OMV, an Austrian company, 30% state-owned.

In an interview for “Romania libera,” John Nellis, former World Bank expert for the privatizations in Eastern European countries discusses the mistakes made by his institution with its enthusiastic approach towards privatizing state companies in former Communist countries, without first ensuring that there are solid institutions who enforce the rule of law.”When you privatize in a legal system that is still tied to the Communist regime, without clear rules about what is allowed and what not in a market economy, several people benefit from it – which is not necessarily illegal, because the laws permitted it, but certainly unjust.”

“The New European,” a Romanian journalist, blogs at www.transatlanticpolitics.com.

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