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Siberimania!

Russian Blog (Photo) The Financial Times has come out with a plethora of great articles about Siberia today:

1. Industrial giants tap into frozen wealth

Here are concentrated the bulk of Russia’s reserves – 85 per cent of its natural gas, 80 per cent of its oil and coal, plus gold, platinum, nickel, diamonds, silver and other metals, and timber. As Alexander Khloponin, governor of Siberia’s Krasnoyarsk region – four times the size of France – jokes: “We’ve got rich reserves of just about the whole periodic table.”

2. Crowning of the undisputed frontier king

Rosneft was an active player in east Siberia before the auction. But, says Valery Nesterov, an oil analyst at Troika Dialog, the acquisition of Lot Ten “established the state company as the undisputed king of Russia’s last oil frontier”. Yukos’s remote east Siberian projects looked speculative when the company began investing in the late 1990s. Little exploration had been undertaken, oil prices were low and there was no pipeline to export markets. In business terms, Yukos’s smart move was to hook energy hungry China to east Siberian oil delivered by railway from its Angarsk refinery. Mikhail Khodorkovsky, the former chief executive of Yukos, who heard about the sale in an east Siberian jail where he is serving a 10-year jail sentence for fraud and tax evasion, negotiated a 25-year oil supply deal with the Chinese coupled with joint plans to build a pipeline linking east Siberia with Daqing, in northern China.

3. Corporate governance is ticket to the international stage

The desire to go public is forcing Russian mining companies to address issues of transparency and corporate governance. Polyus and Polymetal now regularly report their earnings and prepare their accounts according to international standards. But some commentators say there is still much to do, such as having independent directors on company boards and improving the transparency of related-party transactions. Alex Gorbansky, managing director at Frontier Strategy Group, a political risk consultancy, says: “A lot of these companies have improved the optics of their corporate governance to enable themselves to be listed in London and New York. They are making progress, but they are still many steps behind western companies. As they get more investment from the west, there will be more incentives to improve transparency.”

4. The challenge is exploiting a gift to minimise a curse

Experts have discussed for years whether Siberia is a curse or a blessing for Russia. It seems a little of both. The challenge is making the best use of the gift – and minimising the negative effects of the curse.

5. Rusal plans to invest $5bn

Now that the integration of Rusal and Sual is mostly complete, UC Rusal is pushing ahead with an ambitious programme of building new smelters and expanding existing operations, most of them in Siberia. By2010, the group aims to produce 5.5m tonnes of aluminium ayear, an increase of almost 40 per cent. Alexander Bulygin, chief executive of UC Rusal, says his group is spending $5bn over the next five years on its Siberian smelters, and plans to invest even more in new smelter projects in Russia’s far east.

6. Hopes of wealth flow from ‘risky’ pipeline

Transneft, the Russian state oil pipeline monopoly, launched construction last year of a 4,000km pipeline across the remote wastes of east Siberia that will open a direct highway for Russian oil exporters to the growing energy markets of the Asia-Pacific. The grandiose pipeline project forms a cornerstone of the Kremlin’s plans to establish Russia as an energy superpower trading oil in all corners of the globe. Western analysts say the pipeline project is an economic gamble. Key questions remain unanswered. No one knows if enough oil will be found in east Siberia to justify building a multi-billion dollar export pipeline whose full cost has not been quantified. Michael Bradshaw, professor of geography at the University of Leicester in the UK and an expert on the Russian far east, says: “This is a classic state project where geopolitics and prestige take precedence over economics. The hard-nosed questions that the private sector might pose are being ignored.”