A Question of Orientation

MOSCOW/BERLIN | | russische-foederation

MOSCOW/BERLIN (Own report) - After construction began on the Baltic Pipeline ("North Stream") at the end of last week, government advisors in Berlin have begun campaigning for further expansion of German-Russian cooperation. Moscow must be prevented from taking an East Asian orientation and exporting more of its natural resources to China than is currently the case, one can hear in the German capital. Therefore, the founding of an energy alliance between Russia and the EU, modeled on the West European Coal and Steel Community (ECSC), is being recommended. The rapidly increasing availability of liquified gas and Moscow's diminishing power, removes the danger of Germany becoming dependent upon Russian natural gas. Russia is "no longer a great global player" according to the German Institute for International and Security Affairs (SWP). At the same time, German companies are interested in obtaining substantial shares in the more than 5,000 Russian state enterprises soon to be privatized. The German Committee on Eastern European Economic Relations is negotiating sales modalities with the Russian Minister of Economy. This Committee considers that Russia should make use of Germany's experience gleaned from selling off the GDR's state enterprises.

The Most Important Hub

Officially the construction of the Baltic Pipeline ("North Stream"), extending from Vyborg (in the vicinity of St. Petersburg, Russia) to Lubmin (close to Greifswald, Germany), began at the end of last week. The pipeline is expected to be supplying 55 billion m³ of Russian natural gas annually to Germany by the end of 2011. That is approximately half of Germany's current natural gas consumption. Engaged in the North Stream enterprise are the German Eon Ruhrgas and BASF's Wintershall companies at 20% each.[1] Chairman of the shareholders' committee is Germany's former Chancellor, Gerhard Schroeder (SPD), and a long term employee of the Dresdner Bank is administrative director. This pipeline will make Germany "Western Europe's most important distribution hub for Russian gas," prophesizes Alexander Rahr, an expert on Russia.[2] This also provides the German consortial companies access to the extensive new natural gas deposits in northwestern Russia, incidentally along with significant industrial profits. The German Europipe Company, a common subsidiary of the Mannesmann GmbH in Salzgitter and the Dillinger Hütte, will produce three-fourths of the pipes for the first leg of the pipeline. The contract is valued at 1.2 billion Euros - a record in company history.

The Mediterranean of the 21st Century

Through the rise of China as the most significant rival of the United States, the shift of world political weight from the Atlantic to the Pacific Ocean, has caused German government advisors to press for an even more expeditious expansion of German-Russian cooperation. Observers have carefully taken note that a recent Russian top-priority strategy paper that received wide-ranging media attention stated: "the Pacific Ocean is gradually being transformed into the Mediterranean of the 21st Century."[3] The implicit demand on Moscow to devote more attention to East Asian Pacific nations, should be taken seriously, Berlin is being told. For example, Alexander Rahr, one of the German capital's most influential experts on Russia, warns that Russia, which today exports 88 percent of its natural gas and 58 percent of its oil to Europe, "could in fifteen years supply not the EU but Asia's growing economies with two-thirds of its natural gas and oil." This would "not be in the EU's interests," Rahr explains and pleads for the establishment of an "energy alliance" between Russia and the EU modeled after the post-war's European Coal and Steel Community (ECSC) in Western Europe.[4] This is about an "interpenetration policy" with Russia and particularly with Siberia, "which is growing in importance as Europe's natural resource reservoir."

Liquid Gas Rather Than Pipelines

According to government advisors, warnings are unfounded that though Germany could, through its close cooperation with Moscow, play a central role in supplying Western Europe with natural gas; it would run the risk of becoming dependent upon Russia. They point, on the one hand, to the growing accessibility of liquid gas, which, with maritime tankers, can be transported without difficulty, sinking significantly the previous extraordinary importance of gas pipelines. In addition, the natural gas deposits, which, until recently, had been deeply embedded in unreachable shale (shale gas), can now be profitably extracted. As a matter of fact, the United States was able to significantly enhance its gas production last year with the help of shale gas. Energy companies in Europe also have recently been exploring shale-embedded natural gas deposits. But here the assessments vary. For example, one of the EU's staff members charged with the question, expressed his skepticism: "I cannot imagine that the USA's shale gas revolution will envelope Europe with the same force."[5]

"Imposter"

According to some in Berlin, not only the natural gas pipelines' loss of significance must be taken into consideration, but also Moscow's loss of power. Referring to the Russian leadership, one of the SWP's experts said back in March 2009, "these elites know very well that Russia, which has hardly the economic strength of Italy, is no great global player. They know that at times they appear to be imposters, when they claim the opposite."[6] Russia is "not so attractive that it can be a competitor to China or the EU," confirmed the expert again in August 2009. Moscow should rather decide with whom it wants to cooperate in maintaining power.[7] Therefore the danger that Germany risks to become dependant, is hardly a threat for Berlin.

Shopping Spree

Possibilities for a closer German-Russian cooperation have been opened, above all with the many sales of enterprises being planned at the moment by the Russian state. Russia wants to privatize more than 5,000 state-owned enterprises over the next few years, both because it is seeking to modernize its dilapidated industrial sector as well as the fact that the drop in income from natural gas has ripped a gaping hole in the national budget. Russia hopes to balance the situation with the sale of government owned companies. A high-ranking delegation of German managers visited Russian Prime Minister Putin already in October to discuss his plans. The German Committee on Eastern European Economic Relations now declares that it wants to become directly involved in Moscow's privatization plans. Last year, in spite of the crisis, German direct investments in Russia also rose, and this development should be encouraged.[8]

Almost Zero

As the Committee on Eastern European Economic Relations pointed out, West Germany has been able to gather extensive experience in privatization - with selling off the state-owned enterprises of the German Democratic Republic. Klaus Mangold, chairman of the committee, had discussed this experience with the Russian Minister of Economy just a few days ago. He particularly pointed out that during the sales of state enterprises, the net yields should never be a priority. In fact they "could even tend toward zero."[9] German companies are - at least under these circumstances - willing and capable of modernizing cheaply acquired Russian enterprises.

Competition

The Germans are encountering competition in their efforts to take over Russian companies. As nearly everywhere else today, Chinese companies are also seeking a stronger position on the Russian market - clearly with growing success. Among Russia's suppliers, China has already surpassed Germany.[10]

Further information on German-Russian Relations can be found at: Financial Bridge, Nuclear Alliance, Strategic Concepts (II), Falling Giants (II), The Berlin-Moscow Economic Axis (II) and Hemispheres.

[1] According to a recent agreement, Eon and BASF will each have to give up 4.5 percent of their shares to allow the French GDF Suez a 9 percent share. The majority of shares (51 percent) remain in the hands of Gazprom. Gasunie, of the Netherlands, holds nine percent.
[2] "Abhängigkeit hat uns nicht geschadet"; tagesschau.de 09.04.2010
[3] Russlands Modernisierungsstress - oder auch: Gedanken über das "Mittelmeer des 21. Jahrhunderts"; www.russland.ru 24.03.2010
[4] Energieallianz als Integrationsprojekt; www.euractiv.de 15.03.2010
[5] Wenig Hoffnung auf die Gasrevolution aus den USA; diepresse.com 18.03.2010
[6] "Eliten wissen, Moskau ist kein großer Spieler"; Berliner Zeitung 06.03.2009
[7] "Russland kann mit der EU und China nicht konkurrieren"; www.dw-world.de 20.08.2009
[8], [9] Russland plant Privatisierung; Frankfurter Allgemeine Zeitung 06.04.2010
[10] Wirtschaftsdaten kompakt: Russland; www.gtai.de November 2009