A mutual expansion of investment in strategic sectors and the resolution of the gas issue are the two major economic issues that Prime Minister Vladimir Putin raised during his visit to Germany late last week and in his November 26 speech to the annual economic forum for CEOs and top managers of leading German companies.
On the eve of his visit, Putin detailed the agenda of his upcoming meetings in Germany in the German newspaper Sueddeutsche Zeitung. In his article, he presented a road map for rapprochement between Russia and the European Union (EU). In part, he suggested forming a harmonious economic community stretching from Lisbon to Vladivostok and in the future, possibly, a European free trade zone worth trillions of euros.
The prime minister also emphasized the need to pursue a common industrial policy based on a fusion of Russia's and the EU's technological and resource potentials. He said it was vital the two sides discuss a new energy treaty, building equitable relations between energy producers, consumers and transit countries. He argued that, promoting partnership in science and education will see Russia and the EU rise to leading positions in these areas. Real integration between them should, he explained, start with the abolition of the visa regime.
Jaroslaw Lisowolik, Deutsche Bank's chief economist in Russia, told RIA Novosti that he was impressed by the scale of the measures Russia put forward for active cooperation. "Progress will primarily be achieved on Russia's WTO accession, the easing of visa restrictions and the development of bilateral trade."
Bargaining for mutual investment
During his meeting with German businessmen, Putin detailed the ideas he put forward in his article and listed the areas where this robust cooperation could first be established. These included: mechanical engineering, the pharmaceutical industry, the production of medical equipment and building materials, and the food industry, to name but a few. If it is to reach this goal, Russia will have to effectively modernize its plants and introduce new competitive production lines. "We hope that modern technologies will come to this country together with foreign contracts and investment," Putin said.
In order to make its assets more attractive to foreign investors, in coming months Russia will simplify the procedures for buying shares in strategic sectors of the economy.
There are 42 such sectors, including geological mineral exploration, the nuclear industry, the manufacture and sale of arms, fishing, space exploration, publishing and printing, to name but a few. A decision allowing foreign companies to buy shares in these spheres is taken at government level.
Foreign investors may be interested in easier access to strategic enterprises, especially considering that many Russian assets are undervalued, Lisowolik explained.
Ilya Prilepsky, from the Economic Expert Group, believes that Russian companies facing privatization under the government plan in the near future could raise interest in the foreign investment community. However, it is also important that Russian investors are welcomed onto the EU market, Lisowolik emphasized. Their chief interest is likely to be in purchasing iron and steel assets, alongside shares in fuel, energy and major trading companies.
Energy package splits Russia and the EU
Having mentioned energy cooperation, Putin continued, saying "the provisions of the EU-approved Third Energy Package may prevent investors from using the gas infrastructure that was built on their money." Under this package, different companies should handle the production, transportation and sale of energy resources. In other words, gas and electricity selling companies should not also own energy networks because in the opinion of the European Commission, this artificially inflates prices.
Meanwhile, when construction is underway, for example - on Nord Stream, its investors hoped to benefit from the priority right to use infrastructure under development to pump their own gas. "These companies invested hundreds of millions of dollars or euros in the construction of gas pipelines and everything went fine, according to the rules, but now they are being denied the right to use the facilities post factum," Putin complained.
"Europe's plan to split fuel delivery from its distribution will undermine Gazprom's plans to enter the European retail market," Prilepsky warned.
Putin expressed the hope that the sides will find a compromise solution on access to gas networks and that the European Commission and Germany's regulating bodies will consider the arguments put forward by Russian and European investors, particularly since the formation of a common energy space is one priority in Russian-German cooperation.
For the time being, Russia is losing ground in the European gas market because the EU increased its LNG purchases from other countries. "Our producers face quite a shock on both the price and scale fronts," Prilepsky said. The gas price depends on the oil price. Thus, this year the average export price for Russian gas was about $267 per thousand cubic meters, while the average price of a barrel of oil was around $77-$78. In the past Russia sold gas at that price even when the oil price was as low as $60 per barrel, Prilepsky explained.
The views expressed in this article are the author's and may not necessarily represent those of RIA Novosti.