Post-Soviet States: People, Power, and Assets Oral History Archive

Interviewee: Ambassador James F. Collins Interviewer: Rebecca Adeline Johnston Date: August 3, 2018 Location: Washington, DC

Abstract

James Franklin Collins served as U.S. Ambassador to the Russian Federation from 1997 to 2001. His long career in the U.S. Foreign service included two prior posts in Moscow, from 1973-1975 and 1990-1993. His expertise in Russia predates his diplomatic career, having earned a master’s degree in history and Russian studies from Indiana University and with research and teaching experience in Russian as well as European and American history, government, and economics. His diplomatic career also included positions in Izmir, Turkey from 1969-1971 and Amman, Jordan from 1982-1984. Stateside, served on the European and Near East bureaus and the executive offices at the Department of State, and on the National Security Council Staff at the White House.

Ambassador Collins has done an extensive interview spanning his life and career with the Association for Diplomatic Studies and Training Foreign Affairs Oral History Project.1 The present interview focused on topics of specific interest to the Post-Soviet States project, including the privatization of the Russian economy in the 1990s and the Russian energy industry.

This transcript is lightly edited for clarity. Unedited remarks are available in the embedded audio recording and can be located with the aid of timestamps bracketed in the transcript text. Interviewer questions and remarks are presented in bold.

Interview Transcript

To start, could you talk about your view of the trajectory of Russian private sector reform throughout the 1990s, from your vantage point in the U.S. Embassy in Moscow?

In the world of the economy, let’s put it that way, I would break the ‘90s into three parts. The first part is the part in which you have, in a sense, the focus on privatization and, if you will, the acquisition of asset by everybody. And if your normal citizen in some village somewhere, it's probably getting your house and your plot. If it’s someone like the oil barons, it’s trying to get

your hands on oil fields. But the theme was, what could you acquire and how could you, basically, make yourself into an economically-defined person, either as a truck driver because you privatized your own truck or a banker because you privatized or made a bank.

The way things were perceived as important, I would say up to sort of the mid-‘90s, was acquisition. That was what it was all about, and it was messy, it was disorganized, and chaotic. Most Americans who watched it thought it was totally unfair, because not everybody got an equal share of the national wealth, which is, I thought, rather naive, but this was kind of the way it was written about. So, you had a very chaotic, often bloody, lawless often, “Wild East” time in which people were acquiring aspects and elements of the national wealth. Now, the government had a privatization program. But how that worked and how it was implemented and so forth was sometimes sort of according to certain kinds of rules. Sometimes with fairness; other times it was somebody shooting somebody else and just grabbing his property.

The second phase, I thought, was the phase that was started in ’94 or ’95 roughly, when something else happened. Enough acquisition and acquiring had taken place that people started to think maybe the way forward was now to make what you had into something bigger or something more important or use it to acquire something else through the system that we might recognize as normal. And a couple things happened then.

Nobody, until that time, ever went to court. Nobody used the law. Suddenly, starting in the mid- ‘90s, people start to go to court or to look to law or legal rules as a basis to protect what they had acquired. And that makes a big difference. It’s a huge step. I don’t mean that it was a complete transition, but it was the beginning of something different. A pioneer in this was [Mikhail Borisovich] Khodorkovsky, who took Yukos [Oil Company] and, having acquired a lot, decided at a certain point in the mid-‘90s that the next step was to grow it rather than just acquire more. So, you begin that process.

And the third phase, I think, is just the one that begins with the financial collapse in ’98. Because until then you kind of had a situation in which nobody thought anybody would use a Russian good if you could get a foreign one. They were importing things like yogurt from Skokie, Illinois. It was kind of insane. When the financial collapse occurred, it brought a much-needed shock to the system, but put the economy almost on a different basis. Because all of a sudden, what people could afford was made in Russia. That was a huge stimulus to things like Russian agriculture or Russian food processing, Russian furniture builders, you name it, who suddenly were now competitive with foreign products. And they were the only thing that people could afford. It gave a huge stimulus to the base of production and so forth in [0:05:00] the Russian case.

From there, through, I would say, the end of the [Boris Nikolayevich] Yeltsin era and into 2000. In that phase you have the emergence of new businesses. It’s the growth of new business based on Russian consumption of Russian product, as well as the fact that the imports were less attractive, because they just couldn’t afford them. It was major periods. And I think it was an immense psychological, educational, institutional, and just practical set of changes at a rapid, rapid pace during this whole decade that people had to adjust to new realities day in and day out. The Russians are very resilient. They managed their way through this in ways that look very

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 2 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

strange to the outside. People thought it was corrupt, people thought it was chaos, et cetera, et cetera. But in fact, it was Russians coping with a reality that was changing on them almost daily—something we have no sense for, frankly, in the United States.

When you mentioned that Americans seemed, by and large, naive about the unfairness, or what they perceived as the unfairness of the privatization of Russia, what did you see that made you perceive it as naive that they thought it was unfair?

Well, it was just a reality that what was going on in the former Soviet space—but we’re talking about Russia here—was unprecedented. Literally, you were privatizing the entire national wealth, essentially. There was kind of a spirit emanating from the Americans—and the Europeans too, it wasn’t just the Americans—that this all ought to be done fairly and with respect for citizens’ rights, and so on and so forth. It was kind of an underlying assumption in a lot of the editorial writing, and the way people wrote about what was happening, and so on and so forth, that everybody in Russia, every citizen, should get an equal share of what the country had. Then, you know, you’d have a market. But, come on. They were asking for the kind of thing where they were arguing that money shouldn’t be—I had one guy come to me one time who was “a democracy expert,” who was saying that there was a perception that money was playing too great a role in politics. That the elections weren’t fair because some candidates and parties had more money than others. Well, come on. I’m from Chicago.

There was a spirit about this that this was somehow a huge experiment that was going on and that every idea that any anybody ever had here was supposed to be put in practice. But there was a sense that it should have been orderly—by laws, by regulations, in a structured way so that a New York lawyer would have made perfect sense of it. And it simply had nothing to do with that. Because there were decrees, there were regulations, there were rules. Some of them were guidelines that operated in how, let’s say, oil fields were privatized, or land was allocated, or whatever. But it was by no means the simple idea that all of this should happen in a way that a law firm in the United States would be comfortable going to adjudicate in a court in Moscow as a fair and proper way to have things done. It just didn’t happen that way.

What was that like to deal with on a day-to-day basis? [0:10:00] The perception that you’re fighting against, and then the pushback, and the advice from all sides?

First of all, again, in this early period, in the period up to the mid-‘90s roughly, the United States was seen as the model. The expectation was that the United States had the answers for whatever the question was, particularly on the economy. I would say on the Russian side there was a kind of perception that, “Okay, we got rid of that old system, now make us into something like you.” And it should happen in a year or so. Also very unrealistic. No concept of what was involved in completely changing an economic culture, which is what was required. There was a set of expectations on both sides that were a bit unrealistic. But as an operational, day-to-day level, as we worked with the government—for instance, as the American government worked with the Russian government—and as American big businesses, which were largely the only ones coming in in a serious way, worked with the government too, because the government still, basically, was the owner.

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 3 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

The assumption was that they were going to be like us. And they fed that assumption by asking us, “How do we do this? Can you make this happen for us? How do I set up this company? How do I get capital, et cetera?” Americans were very happy to answer, give them all that advice. I think we played a major and critical role in shaping very fundamental, basic institutional realities. You had people working in the ministry of finance helping them structure a new tax system. You had people working in some of the ministries of energy and elsewhere trying to say, “Here are ways in which we run our energy industry, or our companies run the energy industry.” You had some major oil companies, service companies, in particular, coming in, working in existing fields, and upping the production immensely just by using modern technology and management practices.

In that sense, there was a receptivity to what we were providing and a hunger for answers to all kinds of questions. We were quite generous in providing them. And I say that I’m proud of what we did. Here, I should have mentioned one other thing, that particularly [Robert S.] Strauss was a key player in getting something called the FREEDOM Support Act passed. The FREEDOM Support Act basically gave a huge package of assistance funding to the project of assisting the Russians to do what they said they wanted to do, which was become a sort of normal Western economy. That wasn’t the only thing that it was meant for, but that was a substantial part of what we did. The international financial institutions and others played a role in providing capital for it, and funding, and so on and so forth. This was a very serious effort, and it was well-received, at least up until the middle of the ‘90s, pretty much without much question.

Some people complain that, in retrospect, there should have been a Marshall Plan for the Soviet Union. Is that something that you would describe as, perhaps, not getting as much credit as it deserves in working towards something like that?

The problem with that concept, with the idea, in my view, is not so much about the amount of money as it is that the Marshall Plan essentially was taking economies that had been market economies—they’d been economies like anybody else’s—that were on their back [0:15:00] because of the war losses and everything else, and essentially providing funding and other things to stimulate them to get them back on their feet. In the Russian, Soviet/post-Soviet case, that wasn’t what this was about. This was about the transformation of an economic reality from one thing to something very different. Money was only a small part of it. Therefore, when people talk about the Marshall Plan, they kind of have in mind, “If we’d just done more money, it would have been—” Well, not really. There were lots of aspects of this that had to be different.

If there was one thing, I think, where we got ourselves into a very major rut that cost us a lot, it was the idea that the problem was money. I would urge you to read the speech that [William J.] Clinton gave to the Naval Academy in April 1993, because he laid out there the Clinton-era policy.2 And we’re talking about the Clinton administration, basically. It had a number of different elements to it, but making a market economy was one. The problem really was that the people who were administering the assistance program—and I put myself partly at fault for this, too, of not speaking up more—but because the coin of the realm increasingly became money that you had to work with, you had the problem that people had neglected the social implications, the politico-socio-economic conundrum, now to the point where we were seeing the issue of success or failure was what the interest rate was, or whether or not the currency was up or down. And we

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 4 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

missed the fact of what was happening to the vast, vast majority of the society, which was that they were on their knees and basically just struggling for survival.

In this sense, I think the most pernicious comparison that kept getting made and gave people the jargon was Poland. Because Jeffrey [D.] Sachs and “the Polish [were] a success” and all this kind of thing was seen as the model. Well, Poland was not Russia. And Poland had not had its entire population raised only in that alternative reality. They’d had it for forty years, but there were lots of people who knew there were other ways. And there were other versions of communists working in Poland, anyway. But when you had people like Jeffrey Sachs and others kind of saying, “All you've got to do is the same thing in Russia,” it led us down paths, particularly on the economic side, that I think were just not relevant and led us in many ways in the wrong direction, or gave priorities that were wrong.

Now, to some extent, I think it’s also true that there were limits to what we could have done differently anyway. But the reality was that this whole sort of scheme of shock therapy and so forth applied to the Russian case simply ignored the political realities that the government had to live with and the limits it had in getting places. I used to try to make that case for something like pension reform. We’d have guys that are coming out there and telling them, “Well, you just have to get rid of the pension system and change it completely, turn it this way, raise the pension age, et cetera, et cetera,” all the things. Perfectly rational economically and absolutely insane politically. And nothing you could possibly do in the United States, even remotely close to it. But we pushed this, and we pushed this in many ways, on lots of fronts, in ways that made perfectly good economic sense to the [United States] Treasury Department [0:20:00] and the development economic people, but ignored the reality of what the culture could take.

You're seeing that today, now, with attempts at pension reform in Russia.

Sure. Same thing, it’s no less of a third rail there than it is here.

Were there voices in the embassy while you were there that had a sense that the Sachs model would not be the best way to go?

Well, yes. Strauss was one. My personal view was that Jeffrey Sachs’s problem was that he would come and he had a silver bullet every time he came for whatever the problem was. And usually they didn’t work. It wasn’t going to solve the broader issue, as he might have put it. I don’t think he ever understood Russia, really. He never understood the limits or the vast difficulties of a country that size trying to undertake these things. And he wasn’t the only one. Larry [Lawrence H.] Summers and others, they all bought into this idea that you can make it easy, you just have to uproot it, put a new thing in place, and let the chips fall where they may. The problem was that economically that might have made sense, even though I think there are even questions in that, given the realities you were facing on things that were fundamental to the economy. But it certainly didn’t work politically. I would say it weakened the support for the ideas that were beyond the economy, because it didn’t produce what were seen as reasonable results.

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 5 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

Given that that was your personal opinion and also Strauss’s personal opinion, what were the forces that you found yourselves coming up against?

Strauss was there early on, and I would say my experience with this was later, in a way. We didn’t face too much resistance early on. Strauss, in getting things like the FREEDOM Support Act through, his position was that we needed to do what we could to provide the assistance the Russians wanted. And it wasn’t just money. He knew that as well. He was a big supporter of exchange programs in education and all of this kind of thing. The real turning point in all of this was the financial collapse. And again, I say that started the third phase. Now, for the Russians, it had certain implications. But it had huge implications, in my view, for U.S.-Russia relations and the way Americans viewed Russia.

Up to then, I would say it was a consensus in the United States—pretty much anywhere you went, the Russian success was our success. That they were doing well; our project was working; they were transforming themselves; et cetera, et cetera. Things were going well. When they had the financial collapse and basically were unable to pay their debts, a huge number of people who had equity in things like government paper in Russia and so forth, from the New York financial banking community and so forth, got egg all over their face. Because when I had gone up there in late ’97 before I went out, I met a number of the financial people and they were telling me that, you know, “This is a tremendous market. We’re making lots of money on financing things.” There were huge interest rates on government paper and so forth. But they didn’t think there should have been a risk. When it defaulted, a lot of people looked really bad.

It’s interesting to go and read the press, say in June, July 1998 in New York and so forth, anything about Russia. And then take September and October, and you’ll find it’s dirt. They basically welched—“they stole our money.” They went from using our money for good things to stealing [0:25:00] it. Now, there was a lot of unrealism about this, the idea that we could prop up the ruble when you had the Asian economic crisis that was tanking the currencies in Asia. And the ruble just couldn’t stand it. But that was a huge change. After that, it never recovered. We went into the “who lost Russia” argument.

Russia’s image ever after, essentially, was dubious at best. Basically, I think it was because a lot of people lost a lot of money and didn’t look good. A lot of people who had been touting success and so forth looked like they’d been naive or had to defend themselves. And the way they defended themselves is, I’d say, reminiscent of our 2016 election outcome—that it couldn’t possibly have been our fault. It had to have been nasty Russians who did the wrong thing. I think ’98 in that sense is very important for the economic side, too, because it really upended the whole concept. The Russians basically were seen as having welched on the deal.

That puts you in a very difficult position as coming in as ambassador.

I would say at that time, both before and after for a considerable period of time, if you wanted the best assessments and basic realities about what was going on in the economy from U.S. government sources—I don’t know how to judge the banking newsletters and such—but the embassy's reporting was better than any of the stuff coming out of the bureaucracy. Because we had a good sense for what was reality on the ground, and also a sense for what was really

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 6 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

happening, rather than it being abstract economic stuff that they said should produce X or Y, and you knew it wasn’t going to.

Going back to the idea of uneven perceptions, in terms of reality and expectations that aren’t even—when you saw the loans for shares3 program going into effect, what was your sense, as that was getting started, for the prospects for that?

First of all, I think the context for loans for shares is something everybody could see it and never quite accept. I’ve had a lot of discussions about this with people, Russians, Westerners, and so forth. My starting point with this is that you cannot put this in an abstract sense. This was a thing happening at a particular place, in particular conditions, and under particular circumstances. The first thing I point out to people is that if you look historically at economic history around Europe or other places, what do governments do when they’re broke? And the Russian government was broke. Not very long before the first loans for shares business, the borrowing happened. I had a lunch with [Anatoly Borisovich] Chubais and some other embassy ambassadors. And he said, “The government has two weeks’ worth of money to pay salaries.” The government was broke.

Now, when a government is broke, what does it do? It borrows money. And where does it borrow money? Well, it borrows money where it can get it, at the best deals. New York banks weren’t going to give them a lot of money at that point. The IMF [International Monetary Fund] had its own schemes and so forth, way of doing it. And there wasn’t a lot of money available, except from the people in the Russian post-Soviet world who had it. This was some of the people who had the banks and some of the big companies and so forth. So they loaned the government money. [0:30:00]

What does the government do? How do they say, “We’ll pay you back.” Nobody thought the government was going to raise a lot of money. So, they used as collateral what they owned, which was oil fields, and forests, and mines, and industries, and so on and so forth. That was the collateral. Now, that collateral was available to others. If other people wanted to loan money— no one ever has said to me that they couldn’t have loaned money and had the same access to collateral. It’s just, not very many people in the environment that you had had in Russia about property rights and so forth thought they wanted to put up a couple of billion dollars against the promise that the government would give them something. So, it was the Russian money that basically provided the loans and got in return as collateral things like oil fields and other things.

Well, could the government pay it back? Of course not. The loans come due, and then you have to auction off these properties to get the money. Well, you then get into all of the arguments about how it was unfair, and it was terrible, it was a scandal, et cetera, et cetera. And I always ask the question of people the following. If you, let’s say, had an auction for an oil field for which there was no clear ownership, no real title, no cadastral survey to know exactly where the boundaries of it were, no very good records of exactly what was there, were you going to play in that? If you’re ExxonMobil or whatever—put up big money? And, of course, nobody was.

Now, there [were also] other ways of knowing how the system could be manipulated, et cetera. That was true too, and the Russians had a big advantage in it. But in the end, of course, the Russian assets stayed with Russians, which was also something the government basically

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 7 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

wanted. They did not want the Western oil—the majors, for instance—owning all the oil assets. You had the outcome you might expect. The assets that were collateral get distributed to the people who had loaned the money, basically, or the people who could produce money to buy it, and it goes to a whole lot of people known as oligarchs. And everybody in the West, as [unclear] said, screamed that this was unfair, and that it wasn’t a fair auction. Exxon wasn’t, I think, in their bidding-heavy time to get these assets at that point. I don’t remember for a fact exactly who did what.

But I think the loans for shares thing certainly was not completely fair. I wouldn’t make that argument. There was certainly a government decision that they really didn’t want to see some of those assets go into foreign hands. Once you made that decision, it didn’t matter what the others bid. You could argue that the government had no right to do that, but—this guy, the outsiders, hadn’t loaned them the money, either.

My view of loans for shares is it was a function of the reality that the government itself had got to the point where it was simply incapable of supporting itself. It was broke. And they had to turn to the people who had money to get themselves through the mid-‘90s. The cost of that was, basically, probably selling or transferring assets, state assets, to a variety of people at prices that probably were seen as, on the world market, in retrospect, to be unfair, unfairly low. Well, would ExxonMobil have paid a lot more for one of those oil fields given the circumstances that they would have had to accept the title? Not clear to me. [0:35:00] I have my own view of loans for shares and it is one that I have had given to me by pretty substantial authoritative Russians as not really off base.

Chubais has tried to use the argument that there was really no other alternative, not so much for those reasons, but for the reasons that privatization had to happen quickly, otherwise things were just going to get worse. And it seems like so much of the problem with the perception of loans for shares has to do with messaging. Did you see, from your vantage point, him and the Russian government struggling to explain what they were doing and why it was so important to do that?

First of all, you’re right about the idea that privatization was seen as an essential thing to have happen quite rapidly, for political reasons as much as economic. The political reasons really basically amounted to the fact that they felt—and I know Chubais, because I had a long talk with Chubais about this—felt that unless you got an end to the monopoly ownership by the state of these huge assets, the communists would be back. Because the thing that had brought down [Mikhail Sergeyevich] Gorbachev—this is me now, not Chubais, but I think it was what he was saying—was that he didn’t deal with breaking up the monopoly of control over the assets of the country. Or when he tried, he couldn’t do it. And so they, Chubais I know, and [Yegor Timurovich] Gaidar and others were determined that they weren’t going to let that monopoly role continue in a way that would bring back—if the Communists could do it, they would get back and they’d have control of the whole economy again.

They wanted to break up the economy as rapidly as they could. Part of that was the famous voucher system. Everybody got a voucher. Was it a great system or scheme? Well, not for everybody, but it was for some. It gave a lot of people the way they acquired factories and

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 8 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

everything else. It did break up the ownership of a lot of the economy. What it didn’t do was break up the control and ownership of the big extractive resources. But it had a very substantial effect in diversifying ownership, and that’s what they were about. But it was as much for political as economic reasons. I said you can’t really divorce the two. Because my economic section people used to come out—I said, “Forget whatever you learned about economics. This is political economy.”

Over the course of the ‘90s, if not at the beginning, American oil and energy companies are trying to break into the Russian energy sector, and they become quite frustrated with attempts to negotiate deals. Things keep falling apart. To what extent was there a role that the embassy was playing while you were there in helping liaison and facilitate?

The embassy played the role it plays for American business, which essentially was to try to advance the interests of America and support American business, but within the limits that the government does. Now, the oil companies had a particular problem, because, remember, we’re at a time of pretty low oil prices. We’re also at a time where globally there’s a certain amount of unsteadiness and uncertainty about the instability in a lot of producing places. I remember being told by the oil people and others, “Well, Russia is a pretty attractive place to have holdings,” because, believe it or not, it’s more stable than some of the [Persian] Gulf, or Iran, or Venezuela, [0:40:00] or Nigeria.

But what I believed was really going on with the majors is that they weren’t looking to bank reserves. Producing Russian oil at that time for the world market, from their point of view, probably would have been a very expensive proposition relative to the price. Because Russian oil is not cheap. It’s cheap in some ways, but you've got to transport it a long way in very difficult climatic conditions. There are a whole variety of reasons it’s not cheap oil. So you needed oil a little bit like North Dakota. It’s great when oil is at a certain level, but until it is, it’s not your first choice. It also would have taken huge investments at a time when returns were going to be, from what I can tell, reasonably limited, given the fact that it wasn’t cheap oil.

You had an immediate problem with the Russians. Because the Russians, for them, oil was the revenue base—oil and gas. They needed production as the tax provider. Oil in reserves meant nothing to them. It gave them nothing. This idea also of production-sharing agreements where, “Well, let us have this, we’ll work for fifteen or twenty years to get everything going, and then you’ll get returns in twenty years,” was useless. It didn’t answer the fundamental need that the government had, which was a revenue stream. So, you had an automatic disconnect right from the outset between the majors, who wanted private ownership of these reserves or fields or whatever—some of which might have been producing, and others—[and the Russian government.] In terms of [the majors’] view, it was a business. The decision about whether you pumped oil or didn’t pump oil or gas was a price and business decision. For the government and the Russian Federation, it was not a business decision. It was a survival decision. Their view was, “We need a guaranteed revenue stream and we don’t care whether it makes money for you or not. You need to pump the oil.”

For all of the ‘90s, we had this disconnect. You had the American majors coming in, and in some cases they signed contracts and did things in areas to improve production and so on. But

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 9 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

fundamentally, what the Russians were using the majors for—or, more to the point, the big service companies—was as vehicles to increase the production from existing fields and help them drill the other ones, drill ones they thought they knew about, or help them with the geological survey or whatever. They wanted help in service. They didn’t want ownership.

Now, the exception was offshore, because offshore the Russians had no technology to exploit the resources. Their view was, “If these fool Americans wanted to go and punch holes in the ice or the ocean and give us half the money, be my guest. That’s not a problem, because it isn’t something we can do. If they’re doing it, they’re not going to do it without producing the oil. And if they don’t produce it, we can’t get it anyway. So, no problem.” This is why you never really got production sharing, because it did not answer the fundamental reality that they had confronted, which was the need for an absolute revenue stream from their asset. And the majors, that wasn’t what they were about. Even more to the point, even if they had said, “We’re going to produce oil now,” in three years if the price went down, the business decision would have been, “Well, this is too expensive. We’ll go do it in Nigeria.”

Is that something that you saw as it was happening, that you really did have conversations about?

Oh, yes. I used to have these discussions with the representatives. [0:45:00] I probably had it with Mr. [Rex W.] Tillerson at one point or another when he was Exxon, because it was clear. They used to come and complain to me about how unreasonable they were, they were trying to negotiate these production shares and they could never get a signature, the last signature. Well, of course they couldn’t. The Russians would string them along for a long time and get whatever they could out of them and so forth. But they never could get the last signature, because who was going to be responsible in the Russian system for this?

It seems to put the embassy in a difficult position, because on one hand, Al Gore [Albert A. Gore, Jr.] is holding summits with [Viktor Stepanovich] Chernomyrdin and trying to push foreign investment in the Russian energy sector, and yet you see that this dynamic is playing out.4

Yes and no. There was a certain amount of investment in the energy sector, but it wasn’t in terms of the majors getting access to fields or whatever. It was, essentially, in working with the Russian industry itself to improve its production and so on and so forth. There was investment in that. In other words, there was no problem with something like Schlumberger [Limited] or the other big service companies, to the extent they were desired. And to the extent the American majors were willing to go in and be partners in providing, essentially, again another kind of service project, [the Russians] were quite happy to do that. They just weren’t going to give them control and they weren’t going to give them the reserves.

Is that a barrier that the energy companies that you were speaking with sought to engage the embassy in ways to facilitate or push back on?

The majors, in fairness—I don’t think they thought embassies were much use. But they used to come to us to try to understand what was going on. I used to meet with them and they would

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 10 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

come and talk to me and they would want to know what I thought about what was going on and what was [unclear], and blah, blah, blah. I don’t remember many cases in which we were asked to go lobby on behalf of the majors. They thought they were big boys and able to do that themselves, oil man to oil man. I used to tell them, “You’re not playing from the same deck.” And they didn’t like that very much. I would explain to them the problem they were facing was that unless you’re in a position to commit that you, no matter what, are going to contribute to that revenue stream, regardless of oil price, you’re not going to get the kind of agreement you want. And also, that they need the revenue now, not fifteen years from the time you start work on some field.

So, the production sharing idea was never one that went anywhere in Russia, frankly, except offshore, where as I say, they didn’t have the technology to do anything, so it didn’t matter. But onshore they did, and their position was, “We produce oil and we tax it. That’s how this works. You produce oil, you buy something, you produce oil, we’ll tax it.” But you also will not be given reserves unconditionally, essentially. They always had limits on them that they either had to produce at some point or they would lose their leases, et cetera. They didn’t like this much. What they had in Kazakhstan, for instance, was much more amenable. What they were getting in Azerbaijan was much more effective.

The CPC [Caspian Pipeline Consortium] argument, from all I could ever make of it, was essentially tied up with two or three different problems. One was, where was Kazakhstan’s [0:50:00] oil going and how were the Russians going to get a piece of it? Because they thought—at that time, Kazakhstan says it’s independent. Come on, give me a break. The Kazakh oil had all been going through Russian pipelines. That was the only way it got out. They got their cut, or however the system worked—they had the stranglehold on it. What the CPC operation was basically designed to do was change that. They were no fools. They understood that. The question of exactly how they were going to manipulate CPC to ensure that they had a handle, to the maximum they could get it, on Kazakh oil was the issue. All the other stuff was fundamentally about that. In the end, it got built, got done. It was done in a way that satisfied the Russians enough, because it went through Russian territory, so they had a handle on it, et cetera. And the port that was used for it was a Russian port.

I don’t know if you’re familiar with Steve LeVine’s book The Oil and the Glory?

I don’t think so, no.

The long and short of it is he describes the CPC development as a battle between John Deuss and James Giffen on one hand, and Washington and Moscow. And how Giffen was trying to lobby Washington to make this happen; there was this pushback from Moscow. From your vantage point, how much was Washington and/or the embassy involved really in any of the negotiations?

The Americans were involved a lot. The government was involved because it was a Gore- Chernomyrdin thing. Gore used to bring it up every time they had the meeting with Chernomyrdin about where was it, how was it going on, and so on and so on. We wanted it done. But the question was solving this fundamental problem. Forget the personalities. The

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 11 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

fundamental issue was that people were suggesting putting a pipeline into the control of people, not Russia, that was going to give Kazakhstani oil—developed by Chevron [Corporation] and others—access to export without their having some kind of control over it. That was not something that went down well. That was the issue. So just strip away all of it, that was fundamentally what was at issue and people were playing games with it in many ways and so forth, but that was really what was at stake.

Is that something that you had to deal with personally?

Yes, I did. I used to have to go and talk to the [Russian] minister of energy and other things. There would be times when I’d get asked to go and make a point on behalf of Washington about this or that, or that Gore had agreed with this or that and it didn’t seem to be happening, or find out what was happening from people. So, the embassy was involved, but the U.S. government was involved. It was a major project and it was seen as a joint development project of former Soviet space. Kazakhstan and Russia were both involved. It was seen as a positive, winning thing, giving a new market for certain kinds of energy from Kazakhstan.

Since it’s such a unique project in the sense of the number of governments that are taking part in it, the private and state entities that are taking part in it, was that something that was seen as success that the embassy was able to use at all as a model for other projects going forward?

The fact that it has so damn many problems didn’t exactly make it a model, but pipelines were a huge deal in the ‘90s. First of all, if you look at the geoeconomic or geopolitical dimension of it, what was going on in many ways [0:55:00] was an effort by those production areas in other states—Azerbaijan, Kazakhstan, Uzbekistan, Turkmenistan, and so forth—to find a way where the Russians didn’t have a stranglehold over their resources. Let’s put it this way—that was clearly the agenda, even though unspoken really. And the Russians were equally determined, to the extent they could do it, not to let that happen.

So, this was not really about oil, per se, or gas. This was about political control and what was going to happen to the former Soviet space, and how it’s going to be arranged, and so on and so forth. The energy guys, the oil and gas people, had a very specific set of ideas about what the natural order of things had been and should be, if you were in Moscow. It did not include things like CPC.

CPC was interesting because it was an effort to square the circle of letting the Russians have their voice, but not a monopoly. The Russians weren’t stupid. They understood exactly what was going on, and they didn’t like it particularly, but they weren’t willing to go to the mat on it. I remember very well, in the mid-‘90s, in particular, the NSC [U.S. National Security Council] got going on pipelines. And they were talking about the Baku-Ceyhan pipeline, which was to get Azerbaijani oil out to Europe or out to the international market without Russia, was going to be a pipeline that would go down through Turkey.

I remember going to Georgia and Azerbaijan at that time. And I talked to Ilham [Heydar] Aliyev at that time, who was SOCAR [State Oil Company of the Azerbaijan Republic]. He was the head

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 12 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

of the oil company. They were in the process of trying to figure out how to get around the Russian stranglehold, because the Russians were saying, essentially, “You produce the oil, sell it to us, and we’ll get it on to the international market, and we’ll pay you whatever the price is.” Ilham was having a problem that the Russian price was pretty low compared to what he thought you could get. He said, “The Russians won’t talk to me.” I said, alright. What I told him was, “Here’s what you've got to do.” There was this other old pipeline that went from Azerbaijan through Georgia to the Black Sea. I said, “Just go start digging and repairing it. They’ll talk to you.” Which of course happened.

But against all of this, the geopolitical reality at this time was that if Washington had one sort of overwhelming objective, I suppose one would say, it was that each of these new states was to have its own sovereignty, and independence, and capacity to act internationally on the market, independently, and not be just a satellite or something, province of the Russian Federation. One of the things that became central in that in the ’90s was pipelines. How did you give them a degree of economic autonomy if they had oil? Azerbaijan, Kazakhstan, Uzbekistan had oil, as I said, and Tajikistan had gas. Pipelines were always the answer and they got going on pipelines as the big deal.

Baku-Ceyhan was born in that time. I remember a substantial degree of hypocrisy—if you will pardon my cynicism—in Washington, where I was continually told, “Now look, that pipeline can only be built if it’s economically viable. And it’s not going to be subsidized. It’s not going to be.” I said, well, this is frankly nonsense, because it was only going to be viable if it was subsidized. And it was subsidized. Not so much by us, but by the governments and so forth. And we pushed the governments to build it and make sure it succeeded. And they built it. But it was not because it was economically, necessarily, [1:00:00] the smartest decision. It was politically the decision, because it made it bypass the Russians. just like the Russians today are trying to bypass Ukraine by Nord Stream 2. Same game.

When you say that we were pushing for the other states’ governments to do that and that Washington is less interested in providing those subsidies themselves, was that something that you saw the embassy take perhaps a larger role independent of Washington to try to push?

We weren’t really involved very much in this, because it wasn’t Russia that was specifically involved in the construction, except for CPC. These others were all a function of what was going to happen with these other states. To the extent we were involved—I wouldn’t say we were involved that much, but there was lots of back and forth about policies towards pipelines. Because the other side was—and this I was involved in—the Russians had been the principal suppliers of gas, particularly to Georgia, Ukraine, most of the former Soviet space, other than those who had it domestically. We had been for most of the decade preaching market development, market pricing, and so on and so forth.

And when the Russians tried to raise the price of gas to the Georgians to market prices, we went ballistic. Because this was unfair, it was political blackmail, et cetera, et cetera. Well, I had a problem with that. I used to have to go deliver démarches on this. And the same was true with the Ukraine. Now, this was after my time. Because [Vladimir Vladimirovich] Putin's the one

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 13 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

who said, “You want to have your own future? Fine. You’ll pay market prices for the gas.” And this just drove them crazy. This was seen as totally unfair practice by the Russians. Well, I didn’t think you could have it both ways, frankly.

[INTERRUPTION]

Generally, in terms of energy policy, including pipelines, what was the dynamic between the embassy in Moscow and Washington, in terms of the direction that policy was coming from?

The embassy was fundamentally providing analysis, providing information, providing our views about Russian thinking on this, or Russian attitudes, or how Russia would react to X, Y, and Z, or what might work with Russians. That was what the embassy was fundamentally doing. In turn we would be told to go and talk to people like Gazprom or the oil ministry or the energy ministry and so forth, explain what Russians, Americans were doing, or what their view was. We had démarches every so often about things like CPC or whatever, or we would arrange for meetings for oil people, or gas people, or whatever. We were supportive in that sense, and we did what we were asked to do by Washington. We weren’t making any policy, basically. But that’s what an embassy does, basically.

What we could do, and did do, I think, was provide the best information we could about what was going to work or not work, or what was going to be favorably received or unfavorably received, or seen as crazy, or whatever it was. But that was our job, basically. We had good access to people like the energy officials, the energy companies in Russia. We had very good relations with all of these people, and could pretty much talk to them about anything at that time. The ‘90s were very open. I could basically see almost anybody I wanted to, even if I needed to see Yeltsin, I could. I never pushed that unless I really had to see him [1:05:00] on orders from the bosses in Washington.

But I mean, it didn’t do that. I did maybe three or four times in my tenure. But we did see these people regularly. And we traveled, we saw governors. We tried to provide good information to people like the oil people and so forth if they were going to a given region or whatever, tell them what they were dealing with—who was there, who were the people who were important, et cetera. That’s what an Embassy does. If you do it well, you’re doing your job. That was generally seen as a plus by the companies, because, frankly, that’s one thing they didn’t have, for the most part.

Yes, I guess that’s the real question—not was the embassy making policy, but did you feel that the intelligence and information that you had was being heeded by Washington?

I think it’s not a simple answer. The bigger the policy question, the less the embassy voice was necessarily going to be the dominant one. But when it came to the companies and so forth, we tended to be listened to. Probably more than Washington, when it came to what are they going to face, how are they going to get something done, et cetera. I think we were better at it, which is normal. If it was a question of, what is the U.S. government view of this, well, we could tell them what we knew. But generally that was a function of their people in Washington, finding out

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 14 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins

what the view was. And, the policies were made back here, not there. We played a role in the policy in the sense of providing the information and saying, “This will not fly.” Sometimes they listened, sometimes we were ignored, which is also normal.

[END OF INTERVIEW]

1 Amb. Collins’ interview with the Association for Diplomatic Studies & Training can be found in two parts here and here. 2 See a video of Clinton’s speech here: https://www.c-span.org/video/?39265-1/us-russia-relations 3 "Loans for shares" was one of the most controversial of the Yeltsin government's privatization programs. For two opposing views from recent academic debate on loans for shares, see Daniel Treisman (2010) "Loans for Shares" Revisited, Post-Soviet Affairs, 26:3, 207-227, DOI: 10.2747/1060-586X.26.3.207 and Chapter 5 in Carol Scott Leonard & David Pitt-Watson (2013) Privatization and Transition in Russia in the Early 1990s. Routledge, DOI: 10.4324/9780203766828 4 These summits were part of the U.S.-Russian Joint Commission on Economic and Technological Cooperation, more commonly known as the Gore-Chernomyrdin Commission. For background on the commission, see Matthew Rojansky, INDISPENSABLE INSTITUTIONS: The Obama-Medvedev Commission and Five Decades of U.S.-Russia Dialogue. Carnegie Moscow Center, 2010, pp. 15-22, available at: https://www.jstor.org/stable/resrep21092

Ambassador James F. Collins, interview by Rebecca Adeline Johnston, August 8, 2018, transcript, Post-Soviet States Oral 15 History Collection, Robert S. Strauss Center for International Security and Law, Austin, TX, available online at: https://www.strausscenter.org/interview/james-collins