Russian Business Chases European Market
February 25, 2002
When one thinks of Russian investment, one thinks of privatisation, of Western capital, Russian factories and corporations taking advantage of low eastern wages.
But investment also goes the other way. Russian business is investing beyond national borders – and beyond the borders of the former Soviet Union.
Take the case of Wingas, a natural gas company in Kassel, Germany, a joint venture of locally-based Wintershall AG (65 percent) and Russia’s gas monopolist Gazprom (35 percent). Germany’s second-largest gas company is a more ordinary sort of operation than many west Germans might think.
After all, Russia has long-standing interests in the German and European markets. It’s just that Russian interests in eastern Germany and Europe have shrunk since the disbanding of the socialist COMECON trading bloc. Since that collapse, Russia has been plotting ways to adapt and re-enter the markets that slipped out of the Soviet grip.
Wingas is an instrument in Russia’s plan to make its traditional big-money exports, natural resources like gas and oil, a longer-standing source of income. With a pipeline network spanning about 1,900 kilometres, Wingas supplies natural gas to German municipal buyers, regional gas suppliers, major industrial operations and power stations.
The company’s influence is due to grow, with the construction of a new pipe, the SÜDAL, boasting capacity of between 10 and 12 billion cubic metres per year. Linking in with the MIDAL long-distance pipe, by 2004 the SÜDAL project will supply gas to the southern German market – cities like Heidelberg, Heilbronn, Stuttgart, Augsburg and Munich.
As it stands, some 27 percent of European gas imports and 18 percent of oil imports are Russian, according to the energy company Yukos. This is arguably low, since Russia and the former Soviet Union possess an estimated 34 percent of the world’s total gas reserves and 16 percent of known oil.
Yukos is among the major Russian energy firms looking to expand specifically in Germany, one of the region’s top consumers of Russian energy.
A proposed power grid linking Russia’s power supplies to the European electricity market, accepted in theory by the European Union and now pushed with new vigour by Russia’s state Unified Energy System, would also enable a boost in utility exports.
There is some resistance to reliance on Russian oil, gas and electricity, especially from former COMECON countries. The government in Moscow has a history of using economic leverage to bolster its political will, especially in the Baltic states of Latvia (a major oil-transit country) and Lithuania, where energy politics and politics go hand in hand.
But statistically speaking, there is little chance under current conditions that Russia could manage such a power play with the European Union, even as it enlarges. Russia’s economy remains pitifully small, considering its size and wealth in resources. With a population nearly twice as large as Germany’s, Russian gross domestic product ($1.1 trillion in 2000) is just about half of Germany’s.
Companies like Wingas are a foothold, but Russia as an investor and exporter still has far to climb.