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Monday, April 28, 2008

EDITORIAL: Putin's Russia, Running on Empty


Putin's Russia, Running on Empty

Most Russians don't know that sickening feeling of driving on a lonely road and realizing that you are running on empty, about to run out of gas and be stranded all alone. They don't know it because, with an average wage of $4/hour, they can't afford to buy a car (Russia does not rank in the top 55 nations of the world in automobiles per capita, Mexico for instance has far more; likewise, Russia is not in the world's top 50 countries ranked for per capita purchasing power GDP) -- and even if they could, the spiking price of gasoline at the pump would preclude them from using it. That's to say nothing of the horrifying prospect of dealing with corrupt police officials at virtually every intersection, or Russia's horrific rate of highway fatalities -- Russian roads are among the most dangerous in the world.

It's quite strange, of course, to read that Russians are being oppressed by the rising cost of gasoline, since Russia is a world leader in oil production. One would think that at least one benefit of living in Russia would be cheap gas. But in fact, we've previously reported on how Russian oil production is falling off fast. Those who hope that Russia can replenish its production by developing offshore fields may be barking up the wrong oil derrick. The energy industry trade publication Upstream Online (hat tip: Robert Amsterdam) reported on April 18th:
Russia needs 61 trillion rubles ($2.6 trillion) of investment to develop offshore oil and gas deposits, Rosneft boss Sergei Bogdanchikov has claimed. Exploration alone of offshore regions until 2050 will cost 16 trillion rubles and production 45 trillion rubles more, Bogdanchikov told reporters and government officials in Moscow today.
UpstreamOnline also reports:
Russian gas giant Gazprom has booked a a worse than predicted 20% fall in second-quarter net profit, blaming lower sales in Europe and higher operating costs. Net profit fell to 113 billion roubles ($4.62 billion), to International Financial Reporting Standards, from 141 billion roubles in the same period last year and below the average of 129 billion roubles in a Reuters poll of 11 analysts. Revenue rose 5% to 532 billion roubles, in line with forecasts, but the bottom line was hurt by high operating expenses, which jumped 18% year-on-year to 390 billion roubles. Gazprom's total long-term borrowings, including affiliates, rose to 1.105 trillion roubles from 806 billion roubles at the end of 2006.

So Russian gas and oil fields are running dry, trillions are needed to refurbish them, and Gazprom is deep in debt, unable to provide such funds. Blogger Tim Newman of White Sun of the Desert, who works in the Russian energy sector, adds:

The $2.6 trillion required by Gazprom and Rosneft is only that amount needed to develop Russia's offshore fields. The onshore developments will need separate funding, as in Upstream Online tells us: "Gazprom Neft, which expects Gazprom to hand over the right to develop all of Gazprom's 11 oilfields within the next two to three years, has said it plans to invest up to $4 billion per year to 2020, or around $50 billion, to boost output." $4bn per year is one hell of a lot of money for a single company to invest in oil and gas projects, if not much beside the $62bn per year that they say they are going to have to come up with to develop the offshore fields. Bear this in mind next time you hear about Gazprom investing in trans-saharan pipelines, Libya, and Nigeria. Despite the political rhetoric and talks of the massive potential and influence of Gazprom, it is Russia's most indebted company. In other words, Gazprom is unlikely to be in much of a position to be financing mega-projects any time soon, and if it is going to sink billions into places like Africa, having never run a major project on home soil let alone in a political minefield like Nigeria, Russians might be waiting a while for their offshore gas receipts.

If the #1 best indicator of the total failure of the Putin administration in Russia is the country's rapidly declining population (Putin's policies are wiping out Russians with Hitlerian efficiency), then surely the second-best sign is the decimation of Russia's energy sector. Russia could, of course, solicit foreign investment to provide the needed sums, but then it would have to share the profits and the control, and it's currently in the process of enacting legislation to make this illegal out of pure neo-Soviet paranoia. The Kremlin imagines that it can simply bleed the nation white, just as was done in Soviet times, using the funds from oil and gas proceeds not to develop the nation or even the energy sector, but to wage a new cold war with the West. Meanwhile, just as in Soviet times, the energy sector and the people themselves get sicker and sicker until finally there is a massive collapse.

Speaking at Harvard University in November 2006 Martin Dewhirst, an Oxford-trained Russia scholar who during the Cold War mixed lecturing at the University of Glasgow with translation work for Radio Liberty in Munich, said of Putin's Russia:
"To call it post-Soviet Russia is a little bit premature. Neo-Soviet Russia might be a more appropriate term." He said he was glad Andrei Sakharov died in 1989. The nuclear physicist who personified anti-Soviet dissent, said Dewhirst, "would have died of a broken heart in the 1990s." Post-Soviet" does not convey the right perception to either scholars or to a reading public outside Russia, said Dewhirst, who prefers the retrograde power of the term "neo-Soviet."

Marina Khazanov, who teaches Russian in the Department of Modern Languages at Boston University, disagreed: "If it's a neo-Soviet regime, there is no hope. And there is hope." She pointed to "completely free" newspapers still publishing, and to Russian movies and literature free of Soviet-style repression. One must wonder if, two years later, Ms. Khazanov still thinks so, and indeed whether she now worries that she contributed, in her small way, to delaying opposition to the neo-Soviet state, helping it consolidate power.

Russia replaced the USSR after the most recent collapse. What will replace Russia after the coming one?


Anonymous-ONE said...

LOL! What a weird twist of events it would be if Gazprom's problems caused the Kremlin to free Michael Khordorkovsky (sp?) just so he could run the company CORRECTLY. Wonder what kind of 10+ digit salary it would take. Talk about killing the goose who laid the golden egg, but then the Kremlin is filled to overflowing with Potemkin politicians who know absolutely squat about economics...don't even think about bringing up democracy and a free market.

talnik said...

Hey, Kim
Did you see this?

La Russophobe said...


You're making a common mistake of the apelike denizens of Moscow, assuming that it is the same as Russia. It isn't. Moscow greedily sucks the nation's blood like a leech, allowing itself many privileges not enjoyed by the vast majority of the country. It was the same in the times of the Bolshies and the times of the Tsars.

Spend a few days in Smolensk before you talk about how many cars Russians have, dear boy.

talnik said...

Hey, don't yell at me. I'm on your side! I thought it was the biggest pile of propaganda I've read in years and thought you would get a kick out of it. Not everybody is against you, dear girl.

La Russophobe said...

Hooray! Next time explain the purpose of your link if you want to avoid confusion. Just adding "pile of propaganda" would have sufficed. See, we might have missed your comment and an unwary reader might have been fooled by the propaganda if not alerted.

talnik said...

Well, it is a pile of something!