Showcasing the New Russia
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RUSSIA Showcasing the new Russia INTERVIEW WITH HERMAN GREF MINISTER OF ECONOMIC DEVELOPMENT AND TRADE, RUSSIAN FEDERATION You were closely involved in the organisation of this St Petersburg has historically been Russia’s ‘window year's International Economic Forum in St Petersburg. on the world’, and will be the focus of intense How satisfied were you with the outcomes of the international attention during the G8 summit in meeting and what innovations have you introduced to July. How does the city intend to capitalise on this the format of the event? heightened level of international interest, and what competitive advantages can it offer would-be We were extremely pleased with the results achieved. In international investors? the end, more than 5,000 delegates from 46 countries took part in the Forum, including President Putin St Petersburg has been riding a wave of vigorous and Finland’s President, Tarja Halonen. We were also development in recent years, particularly since its 300th fortunate to have a great many senior executives from Anniversary celebrations in 2003. Both visitor numbers HERMAN GREF both Russian and international companies speaking on and media interest in the city have grown, and it is actually graduated in law from a wide range of subjects. Around ten contracts worth becoming quite difficult to find hotel rooms at certain the University of approximately US $1 billion were also signed over the times of the year. At the same time, the city authorities Omsk State in 1990. course of the three days. are making full use of the available hotel facilities to From 1991-98 he was As this year marks the tenth anniversary of the encourage business events to come to St Petersburg. a member of the St Forum, we introduced a brand new format in order They have also been very successful in attracting Petersburg Municipal to encourage discussion of the most vital issues facing large-scale foreign investment in the city – Toyota, for Property Management the global economy. We also constructed a purpose- example, has more than US$1 billion invested in St Committee, serving as built venue to house the Forum, which allowed Petersburg. Nissan also signed an agreement to build Chairman from 1997-98. several exhibitions to be held concurrently with the a manufacturing plant in the city during the Economic Between 1998 and 2000 main programme, on the themes of Achievements in Forum, and General Motors has a significant presence, he was First Deputy State Innovation, Advanced Technologies in Energy and along with many others. Property Minister of the Investment Projects. In terms of its competitive advantages I would say that Russian Federation and Our aim is to make the Forum the principal platform its highly-skilled labour force, its strategic location and was appointed Minister for addressing the key economic issues affecting the its long tradition as a cosmopolitan, outward-looking of Economic Development world’s emerging economies, in particular the so-called city have definitely helped attract foreign companies and Trade in 2000. BRIC countries: Brazil, Russia, India and China. With to invest. It has also seen the implementation of a Mr Gref also serves as that in mind, this year’s programme focused on the number of interesting projects recently, in particular Deputy Governor from economic prospects for these emerging economies the redevelopment of New Holland Island, the former the Russian Federation in the age of globalisation, highlighting both their military zone in the central hub of the city. The on the International competitive advantages and structural weaknesses. project was put out to tender, attracting bids from Bank for Reconstruction Senior representatives of the governments of the such internationally renowned architectural practices and Development three other BRICs took part in the Forum and we as Germany’s Engel & Zimmerman and the Dutch and the Multilateral devoted a special session on the second day to an in- architect Erick van Egeraat, and was finally awarded to Investment Guarantee depth analysis of the Russian economy in particular. Britain’s Norman Foster in February of this year. Agency (MIGA). This session featured roundtable discussions on different aspects of the economy, including knowledge- Given its lack of significant oil and gas-based based industries, raw materials and commodities, the economic activity, do you see St Petersburg as a model judicial system and related problems, corruption and for the diversification of the Russian economy as a whole? What is your view of the current state of this issues related to efficient corporate governance. diversification process? In keeping with St Petersburg’s status as the cultural capital of Russia, there was also an extensive recreational Economic diversification is a very lengthy process; it programme, including the White Nights Festival, a cannot happen overnight, in five or even ten years. performance by the stars of the Mariinsky Theatre at At present, a quarter of the Russian economy is based the Peterhof and a concert by the Rolling Stones. on oil and gas, although diversification is very much All in all, I think the Forum was the best marketing a key priority for the government. All of the various for the country that we could possibly have organised. economic instruments that were discussed at the St RUSSIA An efficient Is there room for a ‘state within a state’ – as some produces gas at approximately US$70 per 1000 cubic commentators have described Gazprom – in the metres, whereas it was selling to Ukraine at US$55, modern Russia? and effectual so naturally, the shareholders of the company were I would not say that Gazprom is in any way independent asking: what kind of business is that? Why should a Gazprom is of the government, as the government has a controlling commercial company be expected to sell gas at a price interest in the company. I myself sit on the board of below the production cost of the deposits which it is of paramount directors of Gazprom. currently developing? Given the relatively small size of the Russian market The resulting media coverage was not of a particularly importance at this point in time, Gazprom is undoubtedly the high standard and unfortunately it sent ripples across dominant company, accounting for around 30 per cent a number of European countries, despite the fact that to the of the Russian stock market. Therefore, the dynamics Gazprom has been a reliable supplier to Europe for many of Gazprom largely set the pace for the dynamics of the decades, without any reproach in fulfilling its obligations. government, market as a whole. The fact is that Europe has one main supplier, which I believe we can safely say therefore that an efficient is Gazprom, and Gazprom has one main buyer, which and that and effectual Gazprom is of paramount importance to is Europe. There is a mutual co-dependence, which I the government, and that efficiency hinges largely on believe is the best basis for any partnership. Gazprom efficiency effective competition being put in place. On the other could not turn off the supply to Europe tomorrow, hand, Gazprom, like any mammoth structure, is driven because the Russian economy would collapse. So I think hinges largely to seek a monopoly position, so there is certainly a these anxieties on the part of our European partners are difference in the interests of the government and totally without foundation. on effective Gazprom in that respect. Following the deregulation of the market in To what extent has investor sentiment recovered from competition Gazprom shares however, and the adoption of a the setback caused by the Yukos affair, and how do number of important structural reforms within the you see the investment climate in Russia developing, particularly in the so-called strategic industries? being put company itself, over the coming year Gazprom should see a delineation of its businesses, sub-dividing them Foreign investment in Russia is increasing, but it is in place into areas such as developments, transportation and so still not at sufficiently high levels to meet our needs. on, which is a major step towards making the whole Russia needs foreign investment in order to develop company more transparent. and diversify its economy, and to enable that, we have to work hard to improve the investment climate in the Gazprom’s pricing dispute with Ukraine at the country. A great deal has been accomplished over the beginning of this year caused a certain amount of past year but there is obviously quite a lot still to be alarm in some European countries. How seriously has done. It is a gradual process, but I believe that the most this episode affected Russia’s economic and political important thing is for investors to see at first-hand relations with its European partners? the positive dynamics which I believe we have in the I have to say that I do not think the media coverage of Russian economy today. this subject was either fair or accurate. Gazprom is now embarking on a path of extracting The government has been saying for some time gas from ever more fresh deposits, where the cost of that it is going to clarify the guidelines concerning production is considerably higher than it was in the which industries are to be closed to foreign investment. Can you comment on the current past. In the case of these fresh deposits, Gazprom progress on that front? Herman Gref in conversation with Alastair Harris, The relevant draft law is currently being worked Executive Publisher of FIRST upon. There will be a shortlist of industries – still to be determined – where certain procedures will need to be followed and authorisations sought prior to the acquisition of a controlling interest in the enterprise in question.