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Monday, September 24, 2007

Annals of Outrageous Russian Hypocrisy, Part II: They Simply Can't Act Human

Last Friday's editorial in the Moscow Times:

The European Commission announced energy proposals Wednesday to create greater competition and set strict terms for foreign ownership of energy assets. The reaction from the Russian side was both swift and hypocritical. At the heart of the measures is the concept of "unbundling," whereby power generation companies are required to sell off transmission networks to provide consumers with more choice and to attract investment for the continent's energy grid.

Russia is actually following an unbundling policy of its own, with the difference that the state maintains ownership of transmission assets that would go to private companies under the European plan. Further undercutting hopes for liberalizing the sector has been Gazprom's snapping up of generating assets as they become available. Both Gazprom and the Kremlin have been open about their plans to turn the company into an integrated energy giant not only within Russia, but also in foreign markets -- first and foremost in Europe. These plans at least partly explain the European Commission's proposal that foreign companies buying transmission assets not enjoy monopolist positions and must first be cleared through Brussels. If adopted, the measures will have no different effect than Moscow's efforts to regulate entry to what it has identified as a strategic sector.

The most obvious example of the government's approach was in the approval earlier this year of a law prohibiting any company -- whether foreign or Russian -- from owning gas pipelines in Russia. Transneft, the state oil pipeline operator, enjoys the same protection in the petroleum sector. Faced with Western calls for access to pipeline assets, Moscow has made it clear that foreign companies have to play by Russia's rules in the sector.

So be it.

The Russian side, unfortunately, seems unprepared to accept that energy security is a strategic consideration for Europe as well. "Such limits are against the free market spirit of the European Union and amount to state protectionism," Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, said about the plan Wednesday. Konstantin Kosachyov, chairman of the State Duma's International Affairs Committee, called for reciprocal measures, although he might find it difficult to draft legislation limiting foreign ownership of energy transmission networks to less than the zero percent already in place.

The comments were, to put it bluntly, ridiculous.

To expect the European Union to allow a foreign, state-owned energy supermonopoly to go on a shopping spree while it is trying to break up its own private energy monopolies to promote competition is simply absurd. If European companies have to play by Russia's rules in Russia, why shouldn't it be the same the other way around?

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