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Helsinki Commission Testimony

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On July 24, 2007, the Helsinki Commission of the United States Congress held a hearing entitled “Energy and Democracy: Oil and Water?” which featured witness testimony from experts on energy security. Although I was not able to attend in person, I was invited to submit a written testimony, which can be downloaded in full here. The hearing was chaired by Rep. Alcee L. Hastings, D-FLA., and Sen. Benjamin L. Cardin, D-MD, who both made very interesting contributions to the record. Other commissioners on the bipartisan Helsinki Committee include Hillary Clinton, John Kerry, Chris Dodd, Sam Brownback, and Joseph Pitts. The other witnesses who came to testify were Simon Taylor of Global Witness (an organization much admired by this blog), and Roman Kupchinsky of Radio Free Europe/Radio Liberty. I highly recommend that readers take a look at the unofficial transcript. Below are some excerpts: Robert Amsterdam testimony:

Following the consolidation of state power over the energy sector in Russia, which included the Yukos Affair and the monopolization of pipeline infrastructure, the Kremlin embarked on an multinational “energy diplomacy” strategy to build close relations with other exporters and coordinate the markets they sell to. One of the most notable developments of the coordination strategy was Gazprom’s landmark swap agreement last year with the Algerian state gas supplier (the deal included debt forgiveness and a major arms purchase), which overnight put 69% of Italy’s natural gas supply under Russian control. Following this decision, Italian energy firm ENI found itself coerced into signing Russia’s largest gas supply agreement in all of Europe, and then later became the first foreign firm to purchase controversial assets in liquidation auctions, only to later hand them over to Gazprom. In sum, we are faced with an activist Russian government with an established pattern of using energy supply to achieve economic coercion, and political objectives, in violation of Russia’s obligations under the Helsinki Final Act. As Mr. Roman Kupchinsky describes in his testimony to this record, “Russia is a country which is able and is willing to project its hydrocarbon power around the world.” The tactics through which this is accomplished can be viewed in three categories: cooperation, cooptation, and disaggregation, all of which carry serious ramifications for other energy exporters in areas such as Central Asia, and it will especially affect importers in Europe and North America.

Simon Taylor, Global Witness:

I think, for me, this is really why we come back to this kind of need of a cocktail of mechanisms. So we should see transparency as simply a component. It’s actually quite a small component, but we’re not even there in a lot of these different states we’re talking about. So the oil and gas companies, using this example, are one vehicle to get transparency, because they, after all, are responsible for large percentages of the revenue streams. And so requiring revenue transparency is a way of putting the information in the public domain and let’s see how those mechanisms can work. They will vary depending on the country and the opportunities and the extent to which it’s possible to lean on them, if that’s not an inappropriate term. That’s one part of it.

Roman Kupchinsky, RFE/RL:

Most analysts will agree that Russia’s natural gas industry is the most opaque sector of the Russian economy and that Gazprom, the Russian state gas monopoly, is a secretive corporation responsible only to the Kremlin. (…) One of the reasons for the opaqueness in Russia is that Russia does not have a foreign corrupt practices act. Company executives, Russian company executives, especially Gazprom, let’s get down to the bottom here, Gazprom executives are not bound by any legal restraints when it comes to their business practices abroad, and this is mostly evident in central Asia, as my colleague pointed out, a region where top officials have regularly been suspected of funneling money from oil deals and gas deals, above all, gas deals, into their hidden offshore accounts. This lack of transparency has helped Russia gain control over the central Asian energy market, over the whole sector, and has been instrumental in keeping Western countries at bay, out of central Asia, out of the energy sector. It’s far more profitable for key officials in these countries, in Turkmenistan, Kazakhstan, Azerbaijan, to deal with Russia. Russia is far more amenable. Russian executives, Russian companies are far more amenable to giving kickbacks than to sign deals with an American company which is prohibited by law from doing so.