Post on 03-Jan-2016
Lecture IV: Domestic Politics and the Russian Energy Sector
David Dusseault
Eurasia Energy Group
Aleksanteri Institute
Project Preliminaries
• Identified overlap in current research projects;
• Nature of Russian federalism;
• Structuration of Russian energy sector;
• Focus: actor agency within the Russian federal institutional framework; and
• Case study: Russian energy sector.
Chechnya & Yamal Cases
Changes in the Russian Oil Industry
Source: Russian Analytical Digest 01/06
State Influence in Numbers
Source: Russian Analytical Digest 08/06
Early 1990’s Russian Federalism
• Crisis of centre elite legitimisation;
• Decline of centralised administrative control;
• Rise of regional elite administrative “independence”; therefore
• Increased difficulty in maintaining consensus amongst elites at all levels of the Federal system.
Chechnya & Rosneft
• Northern Slopes of the Caucasus;
• Southern Federal Okrug;
• Shares borders with Dagestan, Ingushetia, Georgia;
• De-facto independent from and at war with Moscow 1991-2002;
• Grozneftegaz & Baku-Novorossiisk pipeline major industrial assets in republic.
Point of Departure: Grozneftegaz
• Resurrected Chechen Oil Company (2000);
• Majority owned by Rosneft 51% & minority interest Chechen Republican govt.;
• Extraction licensing unclear (2000);
• Production figures: 750t tonnes (2001) to 2.2m tonnes (2005)
• 150t tonnes stolen (2003); and
• Profit row over Rosneft earnings (17-25b RR 2006): transfers to Chechen budget 30m RR (total Chechen budget 19b RR).
Historical Background: Grozny the Second Jewel in the Crown
• Production centred on 3 fields Starogroznenskoye, Novogroznenskoye and Voznesenskoye;
• 1917: 21.8 percent of total Russian oil production;
• 1932: 35.7 percent of USSR’s total oil production;
• Post WWII Shift in production from Grozny to the Volga-Urals and in the 1960’s, West Siberia;
• Chechen based hydrocarbon production becomes specialised: Union-wide aviation fuel, lubricants and paraffin; and
• Grozny becomes the heart regional hydrocarbon supply, processing and transit infrastructure.
The Lead up to Perestroika: Growth in the USSR’s Oil Industry
• 1987: 596.5m tonnes including gas condensate;
• 1951 to 1987: production in RFSSR increased 26 times = 90 % USSR production;
• Industry suffered from over-investment, poor oil field practices and outdated technology;
• USSR production was concentrated in Russia 11.5 million out of 12.5mbd in 1988; and
• By 1993, production collapsed to 7mbd.
Dance with the Devil: Dudayev, Maskhadov & Black Gold
• Priority to consolidate power;
• Fractured elite structure, lack of viable economic and political platform;
• Multitude of elite groups, field commanders as political entrepreneurs;
• Open ended bargaining game: president becomes hostage to rival elite groups; and
• Oil fills the institutional gap: profiteering; collapse of social & economic fabric.
Kadyrov(s) & Alkhanov: New Pipers, Same Old Tune?
• Elite consolidation: fewer gatekeepers;
• Rent seeking shifts to federal level;
• Ownership of licenses, control of stock packages & budgetary transfers are points of contention; and
• Republican regime & Moscow maybe hostage to unrealistic expectations for oil based economic, political, and social development.
Gazprom and Yamal-Nenets AOk
• With Khanti- Mansii AOk, forms part of Tyumen Oblast, Ural Federal Okrug;
• GRP 279,355.6M RR;
• Gas & oil extraction, electricity generation; and
• Major FDI: 2.5B Dresdner Bank loan to Gazprom (1997).
Source for slides 14-19 Russian Analytical Digest 01/06
Politics and Business: Mutual Dependence?
• 80% Gazprom’s total extraction from YNAOk;
• 90% tax revenues for regional budget;
• 60% from subsidiaries / 10% Sibneft;
• Gazprom represented in local administration; and
• 28.8% of the seats of the regional parliament.
The Beginning of a Beautiful Relationship
• Forged during regional-federal restructuring process;
• 1993 rocky relations with regional authorities;
• 1996 Gov. Neelov appointed to Gazprom Board; and
• 1996 Elections Neelov wins comfortably;
Economics of Regional Political Power
• 1997 economic relations flourish;
• Annual agreements based on barter;
• Gazprom supplied the region with gas;
• Wrote off against corporate taxes at wholesale rates, not market price;
• Region sold gas back to Itera at preferential rates; and
• Total back tax 11B RR or 500M USD.
Rent Transfer: Who Benefits?
• Gazprom’s regional assets were registered in Moscow;
• Taxes no longer were accrued by the local authorities; and
• Local managers took decisions based on priorities determined at corporate headquarters, not regionally.
Regional Backlash: A Messy Divorce
• Neelov fails to be re-elected to the board (1999);
• Takes advantage of a federal loophole & invites “indies” to develop regional resources;
• Benefits (licenses & tax breaks) afforded to Novatek; subsequently
• “Indies” increase market presence: 2-13%.
Gazprom on the Rebound
• Corporate strategy changes to acquisitions of regional companies;
• Sibneft bought in 2005;
• Gazprom regains the upper hand;
• Regional tax revenues from Gazprom assets increase to 70%;
• Neelov sought re-election & made concessions to Moscow & Gazprom.
Conclusions: Causes for Concern
• Unresolved legal issues regarding the control over resources between federal & regional authorities;
• Resulting institutional fluidity encourages cynical economic
behaviour & discourages political consensus, but allows for flexibility & room to manoeuvre in negotiating process;
• Actor agency resembles a nested game amongst elites at various levels of the federal structure; and
• Results may have measurable consequences in terms of Russia’s future capacity to “rationalise” the organisation of its energy sector.