EurasiaNet Eurasia Insight - Russia Seeks to Use Energy Abundance to Increase

EURASIA INSIGHT

RUSSIA SEEKS TO USE ENERGY ABUNDANCE TO INCREASE
Igor Torbakov 11/19/03

At the end of the 19th century, Tsar Alexander III liked to say that Romanov Empire had only two true allies � the Russian army and navy. At the outset of the 21st century, as Moscow strives to reassert its influence across the post-Soviet space, Kremlin officials might say they rely on just one trustworthy ally � Russia’s vast energy resources.

Russian business executives are acting as shock troops in the Kremlin’s latest bid to reestablish its controlling influence over former Soviet republics, confirming that economic considerations are exerting increasing influence over the policy-making establishment in Russia. The South Caucasus has emerged as the proving ground for a new Kremlin strategy that seeks to utilize Russia’s energy abundance to increase its leverage over countries in the "near abroad." If successful in the Caucasus, leaders of Russia’s economic and political elite have already indicated they intend to use the strategy to increase Russian influence in other regions, including Central Asia and Ukraine.

Russia’s electricity giant � RAO Unified Energy Systems (UES), in which the government has a controlling share -- has led the Russian charge so far in the Caucasus, acquiring large stakes in energy ventures in both Armenia and Georgia. It also has announced plans to export energy to Turkey and Azerbaijan. [For background see the Eurasia Insight archive]. The company’s CEO, Anatoly Chubais has been a leading advocate of the establishment of a Moscow-dominated "liberal empire" in Eurasia. [For background see the Eurasia Insight archive].

On October 22, Chubais visited Armenia to finalize the deal with Yerevan. The fact that Chubais -- who holds no official post in the Russian government, but who is a leader of a Russian political party � met with Armenia’s top leaders, namely President Robert Kocharian and Defense Minister Serzh Sarkisian, underscores the political dimension of Russia’s aggressive move into the Armenian energy market.

Talking to journalists in Yerevan, Chubais divulged some details of UES’s blueprint for future expansion. According to the Itar-TASS news agency, Chubais said that Armenia would soon be incorporated into a Russia-led energy-supply network comprising 10 former Soviet republics, including Georgia and Azerbaijan. He added that UES, which currently controls 80 per cent of Armenia’s power-generating capacity, wants to lease and repair high-voltage transmission lines leading from Armenia to Azerbaijan and Turkey. The aim would be for UES to export power to those two countries, despite the fact that both Baku and Ankara have antagonistic relationships with Yerevan. Chubais suggested that "political problems" should not preclude such exports, going on to hint that UES would not have difficulty in obtaining Azerbaijan’s agreement to the Russian company’s energy export plan.

Chubais indicated the Caucasus offers an ideal "bridgehead" for UES’s expansion into Turkey. He called Turkish market "fantastically attractive" in terms of wholesale prices for energy and development prospects. "The market is growing, promising a number of big projects, including some in the aluminum sector and other power-consuming industries," RIA-Novosti quoted Chubais as saying.

Russia’s near total control of Armenia’s energy market has caused understandable uneasiness among experts at some international financial institutions. The transfer to UES of more Armenian energy facilities would be "undesirable," World Bank official Gevorg Sargsian told RFE/RL’s Yerevan bureau on October 28. Sargsian stressed that "we have nothing against UES or any other foreign company," but the bank would prefer that other owners acquire power facilities that have yet to be privatized.

The political implications of the UES’s economic expansion are obvious. "Since we are not talking about the sale of cold drinks � electricity supply being vital for the people to have a normal life � Moscow is set to gain control over key economic sectors [in Armenia and Georgia], and over their overall existence in general," political analyst Yevgenii Arsyukhin wrote recently in the Russian government daily Rossiiskaya Gazeta.

Chubais publicly denies that his company seeks political gains. "We do economics, not politics," Chubais said in an interview with the Russkii Kur’er newspaper. However, talking to the newsmen after a recent session of the CIS Council on Electric Energy, Chubais offered blunt comments on the need to restore Russia’s undisputed supremacy in the post-Soviet Eurasia. "Russia should be strong. Period," he said. To shun a leadership role within the CIS, to try to "hide it," Chubais argued, would be tantamount to "hypocrisy."

All along the way during its acquisition binge, Russia’s political establishment has cheered UES. "Having once said that he is going to redraw the energy map of the world, Anatoly Chubais is steadily moving towards his objective," Anatoly Gordienko wrote in a commentary published in the Nezavisimaya Gazeta newspaper. "After it suddenly set up shop in Georgia, UES is now taking under its wing neighboring Armenia, putting out feelers with the aim to privatize energy sector in Ukraine and seeking to carry out its blitz in the republics of Central Asia."

To those skeptics who question the feasibility of UES’s expansion scheme, Chubais invariably responds with the following: "Don’t worry, we have long hands."

Editor�s Note: Igor Torbakov is a freelance journalist and researcher who specializes in CIS political affairs. He holds an MA in History from Moscow State University and a PhD from the Ukrainian Academy of Sciences. He was Research Scholar at the Institute of Russian History, Russian Academy of Sciences, Moscow; a Visiting Scholar at the Kennan Institute, Woodrow Wilson International Center for Scholars, Washington DC; a Fulbright Scholar at Columbia University, New York; and a Visiting Fellow at Harvard University. He is now based in Istanbul, Turkey.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

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