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Streetwise Professor

September 25, 2009

Vladimir Putin, Comic

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 4:20 pm

Russians have a reputation for being a dour, humorless people.  I know this is wrong.  There are some great Russian comedians; and no, I’m not talking about Yakov Smirnov.  Take Vladimir Putin–please.

Consider this comic classic: “Putin seeks stable and long term partners for Arctic investments“:

Russia wants foreign energy majors for “stable and long-term” partnerships to develop gas deposits on the Arctic peninsula of Yamal, a region with enough gas in the ground to satisfy world demand for five years.

Prime Minister Vladimir Putin, hosting executives from several international energy companies on Thursday, said Russia would consider tax breaks to encourage development of gas fields in the region. State giant Gazprom (GAZP.MM) backed the move.

“We would like you to consider yourselves participants in our undertaking,” Putin told a meeting in Salekhard, the capital of the Yamalo-Nenets region. “The main condition from our side is that partnerships should be stable and long-term.”

“The main condition from our side is that partnerships should be stable and long-term.”  From “our” (i.e, the Russian) side.  Stop it!  You’re killing me!  You’re one of the great dead-pan comics of all time!

Uhm, Vladimir.  Any “short-termism,” any “instability” that has plagued past western energy investments (and other investments, cf. Telenor), has one source, and one source only: your side.  Russian opportunism and expropriation.  And not just directed against foreigners, but against the unfavored in Russia too (most notably Khodorkovsky).

The Telegraph opines that this reflects Putin’s desperation, given Gazprom’s financial difficulties and limited technological expertise:

No doubt his guests salivated at the idea of getting a piece of the action. By 2020, Yamal is estimated to be capable of yielding up to 300bn cubic meters of gas annually. This compares with a total annual Russian production that currently stands at around 550bcm. State-owned Gazprom spends around 25pc of its capex on the Yamal fields.

But Gazprom is running late, and it’s running short – of both technology and money. It needs foreigners. The aim is to use the Yamal resources to become a major player of liquefied natural gas – which can be exported anywhere without the need for pipelines. Hence Putin’s friendly hand.

. . . .

But Western companies should pause and think. They’ve been burnt before – as when Shell was bullied out of the Sakhalin-2 gas project three years ago. Since then, the legal framework under which Western companies operate hasn’t improved a bit.

What has changed is Putin’s need for foreign capital and expertise. This would be a good thing if it were accompanied by more than words to reassure investors that their money is safe and that they can plan on staying in Russia for the long term, without the hassle of corrupt bureaucrats and judges. Westerners must seize the chance to extract serious concessions from Russia before they rush head-first into the great gas hope, in what otherwise risks being a triumph of greed over experience.

In one of my earliest SWP posts, I noted that fools and their money are soon parted, and that companies would be foolish to invest in specific assets in Russia–particularly in the energy sector, or any other sector deemed strategic.  With the experiences of Yukos, Telenor, Shell, TNK-BP, and arguably now Exxon behind them, western investors have to know that the likelihood that they will be parted from their money is very high if they fall for Putin’s come hither look, and get entangled with Gazprom in Yamal or anywhere else.

Put differently, Putin is the spider, and any investor would be the fly.  Putin may be desperate now, but once there is pipe in the ground and the gas is flowing, his (or his successors) desperation will disappear, and the temptation to expropriate will be irresistable.   Once caught in the Russian web, any foreign energy investor is likely to be the spider’s meal, sooner or later.

Like the Telegraph says, absent credible, enforceable legal safeguards, western investors should avoid Putin’s blandishments like the plague.  The existence of a resource is a necessary, but by no means a sufficient, condition for a profitable investment.  To profit, you must be able to protect the asset against the predations of the state.  These protections are completely absent in Russia.  STAY AWAY.

It is sometimes argued that, echoing Willie Sutton, energy majors have to invest in Russia because that’s where the oil and gas are.  But, Russia is the Willie Sutton of nations: it will rob energy investors because, as Willie said, that’s where the money is.  But only if they are foolish enough to put it in Putin’s reach.  If they do, it will be no laughing matter.

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  1. I disagree with both you and Putin.

    With you, in that the Western majors are desperate for any stake given their rapidly declining reserves, and so their actions are rational.

    With Putin, in that Russia’s resources shouldn’t be exported at all and he and his clique are traitors for doing so.

    Comment by poluchi fashist granatu — September 25, 2009 @ 10:34 pm

  2. [...] China’s growing economy and military—China will protect this oil life line fiercely.  Russia Vladimir Putin, Comic – 09/25/2009 Russians have a reputation for being a dour, humorless people. [...]

    Pingback by Ладушки.Net » Blog Archive » Posts about Putin as of 26/09/2009 — September 26, 2009 @ 3:04 am

  3. S.O., Russia would be Zimbabwe with snow by now if it weren’t for oil/gas revenues. So what you are saying is that Putin should cap all of the oil and gas wells and then fund all of their pensioners with what exactly…..?

    Let them eat snow?

    Comment by penny — September 27, 2009 @ 8:14 am

  4. Excuse getting off topic, but can we expect a SWP post on the Nets/Nyets announced ownership change? It’s a subject mixing sports and business, having yays and nays on both sides of the Atlantic.

    Comment by Cutie Pie — September 27, 2009 @ 8:21 am

  5. @penny,

    Russia should produce just enough oil and gas for itself, and only export when prices are extremely high. The hard currency should only be used to buy technologies and machines.

    It survived OK in the 1950′s and 1960′s without exporting its riches. It should invest in domestic industry and agriculture.

    Comment by poluchi fashist granatu — September 27, 2009 @ 12:33 pm

  6. The stalinist bureaucracy and investment .

    Killing The Geese that Lay the Golden Eggs

    Stalin could claimd that Russia would be the greatest grain-producing country in the world within three years in 1929 and again in 1935, and though Malenkov claimed in 1952 that a target of 130 million tons of grain had actually been achieved, after Stalin’s death Krushchev [9] made clear ‘that as regards grain production the country remained for a long time at the level of pre-revolutionary Russia’.

    The Putin-mafias leaderships can only use the old political levers to increase production – investments in machinery and in consumer goods industry – can not overcome the tendency of blind management and the economy will continue its unproductive cycle of investment waste.

    The working class is beginning to struggle against the logical results of the restoration of Neo-Stalinist capitalism.
    Its initial steps are still confused, clouded by the decades of Stalinist lies and repressions. Because of the crisis of Stalinism and its complete moral, theoretical and political collapse, the task of the Russian people becomes possible and yet more urgent, since Putin-mafia are in such a hurry.

    Russian businessen favor London. If a state cannot attract its own businessmen to its stock markets, it has a serious reputation problem. If few Russian businessmen desire ruble bonds, why should foreigners embrace them? No country has pegged its currency to the ruble, because it is too unstable and poorly managed.

    Comment by Oleg — September 27, 2009 @ 1:36 pm

  7. See also our story and BP story before the became “partners” with TNK.

    Comment by Alex Rotzang — September 28, 2009 @ 10:16 am

  8. Everyone should thank the raving lunatic “poluchi fashist granatu” for making it all so perfectly clear: Russia doesn’t want to live, prosper and succeed, it only wants to “survive OK.”

    That’s Russia in a nutshell, and I do mean nut. A nation of clueless masochists who actually want to live like barbarians, who think it’s fine to bequeath such existence to their childen. Little wonder, then, that Russia doesn’t rank in the top 130 nations of the world for adult lifespan!

    What a country. And for the cherry on top of this rancid, fetid sundae, the national leaders are babbling incomprehensible gibberish and lies as SWP documents and as further documented here:

    Comment by La Russophobe — September 28, 2009 @ 12:26 pm

  9. PENNY:

    If you read between the lines, he’s saying the pensioners are expendable, as all people have always been in Russia. After all, on many occasions the regime didn’t just let them perish, it murdered them.

    Comment by La Russophobe — September 28, 2009 @ 12:28 pm

  10. [...] The Streetwise Professor has a sharp post on Vladimir Putin’s recent welcoming party to foreign investors in the Arctic energy sector (which was done with a flair of deadpan comedy).  Really it’s the same old story starting over again – no fair courts or rule of law, no security for investments.  Yet the trap keeps luring them in. Put differently, Putin is the spider, and any investor would be the fly.  Putin may be desperate now, but once there is pipe in the ground and the gas is flowing, his (or his successors) desperation will disappear, and the temptation to expropriate will be irresistable.   Once caught in the Russian web, any foreign energy investor is likely to be the spider’s meal, sooner or later. [...]

    Pingback by Official Russia | The Spider and the Fly — September 29, 2009 @ 2:05 am

  11. I am close to the tought that Russian indeed humorless, maybe because of movies, press media. But I believe in one way or another they are funny indeed.

    Comment by flidir — March 1, 2010 @ 11:30 am

  12. Russia and Syria renew old ties…

    The Russian-Georgian conflict provided Damascus with a golden opportunity to convince Moscow of the importance of re-establishing their old partnership. By Marwan Kabalan, Special to Gulf News August 28, 2008 Syrian-Russian relations have been developi…

    Trackback by Russia Superpower — March 12, 2010 @ 3:41 pm

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