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Wednesday, May 28, 2014

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T h i s s p e c i a l a d v e r t i s i n g s u p p l e m e n t i s p r o d u c e d a n d s p o n s o r e d b y R o s s i y s k a y a G a z e t a ( R u s s i a ) a n d d i d n o t i n v o l v e t h e r e p o r t i n g o r e d i t i n g s t a f f o f t h e I n t e r n a t i o n a l N e w Yo r k T i m e s .

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Sberbank Head appointment Could benefit Yandex Vladimir Korovkin academic


Natalia Mikhaylenko

Untangling The Politics of Pipelines The current dispute over gas prices is not the first time Russia has used its resources as leverage. The dispute between Russia and the West over Ukraine is spilling into energy relations, as Russian officials threaten to shut off natural gas supplies to Ukraine over non-payment. Russia supplies Europe with about a third of its natural gas, 40 percent of which runs through pipelines that pass through Ukraine. The fuel keeps factories humming and electricity flowing throughout the European Union. Russia’s natural gas export giant Gazprom is hammering Ukraine over gas debts. Ukraine owes more than $3.5 billion, C.E.O. Alexei Miller said May 12, and Gazprom may cut supplies to Ukraine as early as June 3 if Ukraine doesn’t switch to a prepayment scheme for future deliveries. “If we don’t receive prepayment for June by May 31, then it is possible Gazprom will reduce gas supplies to Ukraine or provide it with the capacity it has paid for by May 31,”Russian Energy Minister Alexander Novak said at a meeting in early May in Warsaw between officials from Russia, Ukraine and the European Commission, Reuters reported. Ukrainian Energy MinisterYuri Prodan said in early May that Ukraine will refuse to prepay for gas. Meanwhile, the U.S. and European states have already slapped limited sanctions on Russia over its involvement in Ukraine’s political turmoil, and are threatening to raise the stakes. Those measures had not yet had an impact on the gas trade, when this edition of Russia Behind the Headlines was going to print on May 23. Indeed, many observers argue that too much is at stake for either side in the gas trade to want to endanger it. Europe’s economy, still fragile in the wake of the financial crisis, could be kneecapped by a disruption in energy supplies. Germany gets 40 percent of its natural gas from Russia. Stern magazine reported in April that Germany’s economic growth could be reduced by almost a full percentage point in

2014 if tighter sanctions are imposed on Russia. Russia, as the world’s-largest exporter of natural gas and second-largest producer after the United States, can likewise hardly afford to endanger its energy export business. Oil and gas receipts make up more than 50 percent of Russian state revenues, and 70 percent of the country’s exports. Hydrocarbons are a vital source of income in what is otherwise a stagnating economy. Russia has taken pains to present itself as a reliable supplier, even as it has squabbled with Ukraine over pricing issues for years. Europe has been utilizing supplies of natural gas from Russian fields in Siberia ever since the Cold War. The flow continued unabated throughout the disintegration of the Soviet Union in the early 1990s. Yet Ukraine’s geographical position between Russia and Europe — as the home of the pipelines — means that disputes between Ukraine and Russia have created challenges for the gas trade over the past decade, after the two countries ceased to be constituent members of the Soviet Union. Gas disputes between Russia and Ukraine have led to shutoffs twice in the past decade, in 2006 and 2009. On both occasions, limiting supplies to Ukraine had an impact on supplies being shipped through Ukraine to European consumers, although both crises were resolved in a matter of days. Russia has long charged Ukraine less than the prevailing market rate for gas that it receives from European countries, in part because of Ukraine’s status as a former member of the Soviet Union, and later because of special bilateral agreements. In the past, Russia has also accused Ukraine of siphoning off gas that was being transported to European markets. Until recently, Russia had granted a pricing discount to Ukraine as a result of two agreements. The first ex-

tended Russia’s rights to host its Black Sea fleet in Ukraine. And the second was struck with deposed Ukrainian President Viktor Yanukovych in December after he delayed a decision on a trade agreement with the European Union. That move sparked the wave of protests that eventually pushedYanukovych from office. Assistant U.S. Secretary of StateVictoria Nuland told the House Foreign Affairs Committee on May 8 that a further rounds of sanctions against Russia would be carefully targeted at sectors that would have limited impact on Western economies.“The idea here is to use a scalpel rather than a hammer,” Nuland said on May 8. New measures would focus on areas“where Russia needs us far more than we need Russia,” she continued. The United States receives no gas from Russia, and only a limited amount of oil. That puts U.S. policy makers in a very different position from their European counterparts. The debate over Europe’s dependency on Russian energy has also exposed differing views inside Europe over how to approach Russia. German Chancellor Angela Merkel and French President Francois Hollande have said they would support further sanctions if Russia is not seen as providing support for the Ukrainian presidential elections on May 25. But Polish President Bronislaw Komorowski has accused the two heads of state of not being aggressive enough toward Russia. In an interview with Germany’s Bild newspaper in early May, Komorowski said: “I don’t have much understanding for the way that some Germans are viewing Russia. It’s better to put out the fire now than to wait for a larger fire to spread to other nations. We can’t just stand by and watch when a nation [Ukraine] is being blackmailed with brutality and military power right in front of our front door.” ■david ■ miller journalist

David Miller is a NewYork-based journalist with many years of experience reporting from Moscow. He covered the 2005 and 2006“gas wars”between Russia and Ukraine.

Russia-China gas deal IS potential game changer Ten years of talks between Russia and China over natural gas supplies have finally paid off in a deal signed on May 21 that some analysts are calling the “contract of the century.” During the long-anticipated visit of Russian President Vladimir Putin to China, Russian energy giant Gazprom and the China National Petroleum Corporation (C.N.P.C.) signed a 30-year contract worth $400 billion. Gas supplies to China are planned for delivery via the Sila Sibiri Pipeline and will begin in 2018 with a volume of 38 billion cubic meters per year, with a possible increase to 60 billion. Analyst Anna Kokoreva of the Alpari brokerage said that the agreement opened up new possibilities.“Currently no natural gas is being supplied to China from Russia. Only this year they began a minor supply of liquefied fuel. Therefore, the signing of this contract means that Russia has opened a new market for itself,” Kokoreva said. Despite the generally positive market reaction to the information about this signing, experts believe that the final price — an average of $350 per thousand cubic meters — is almost critical for Gazprom. According to various sources, the company had expected to get $380 per thousand cubic meters, which is the price European consumers are now paying for Russian natural gas. According to analyst Grigory Birge of Investkafe, domestic gas prices in China played a key role in the price, because the difference between domestic prices and import prices determines the amount of subsidies the Chinese government has to pay. Tatiana Mitrova, head of the oil and gas complex at the Institute for Energy Studies at the Russian Academy of Sciences, said that the price was within the expected range.“This contract, as far as we can judge, has been signed at the lower end of acceptable prices,” Mitrova said. “This is first of all a project aimed not so much at maximizing profits, but rather an attempt at diversifying the markets, as well as a desire to achieve regional development of Eastern Siberia and subsequently gain multiplicative effects for the Russian manufacturing sector.” Mikhail Korchemkin, managing director of consulting company East European Gas Analysis, said that Russia

would only be able to break even on supplying gas to China by the middle of the next decade. Whatever costs the company will incur, however, are balanced out by the considerable political dividends. Russian gas consumers, however, are the big losers in the agreement since the financing of the Sila Sibiri Pipeline will require accelerated growth in domestic natural gas prices to a level equal to the yields received from export sales. Future economic cooperation between the parties goes beyond gas. During his visit, Putin proposed a zero mineral extraction tax for companies extracting natural gas from fields that will be used to fulfill the future contract with China. Igor Sechin, the head of oil major Rosneft and a close Putin ally, said that a natural gas contract with China was long overdue and that his company may also benefit, since it is also planning to supply gas to China through the Sila Sibiri Pipeline. Rosneft has already provided the Ministry of Energy with a forecast of gas extraction amounts for fields it owns in Eastern Siberia and the Far East. An alternative to the main pipeline for gas supplies to China could be delivering liquefied natural gas (L.N.G.) through the plannedVladivostok L.N.G. project. Gazprom is already planning to attract Chinese companies to help with construction ofVladivostok L.N.G. However, according to Korchemkin, the Vladivostok L.N.G. project is very risky because the cost of L.N.G. from there may be higher than prices in the Asia-Pacific region. Moreover, Novatek (Russia’s second-largest natural gas company) has signed a contract with C.N.P.C. to supply 3 million tons of L.N.G. per year for 20 years from its Yamal L.N.G. project in Russia. Experts agree that it is important for Russia to gain access to the Chinese L.N.G. market, but there is tough competition from Australia and Qatar, so prices for Russian L.N.G. would have to be reduced in order to be competitive. ■Leonid ■ khomeriki journalist

Leonid Khomeriki is a Moscow-based journalist covering the Russian energy sector.

n mid-May. the Russian search engine Yandex made big news by nominating German Gref, the head of state-owned retail banking giant Sberbank, to its board of directors. Some may see this as a primarily political move — as yet another attempt by the Kremlin to crack down on the Internet — but it can be more effectively understood within a purely business context. Quite simply, Yandex is looking to diversify its offerings amid ramped up competition from Google. It’s not easy to compete with Google. Yandex looks as strong as ever as one of the world’s very few national search engines. However, the company definitely needs fresh ideas to maintain its historical growth rate in the high double-digits. Yandex is one of the success stories of the Russian Internet.The company is one of a handful of cases where a local Russian player successfully resisted the market entry of a big Silicon Valley company. To sustain its growth, however,Yandex needs to at least keep on par with Google in technological innovation, developing more and more effective analytical algorithms of Web search and contextual placements of ads. The economic environment is also not so bright for Yandex’s development. If Russian consumer markets are to slow down in line with overall near-stagnation in the economy, this will likely mean flat ad revenues regardless of its competitive position compared with Google. continued on PAGE 3

The Future of Atomic Energy to be Discussed at ATOMEXPO 2014 On June 9-11, 2014, Moscow will STAGE the 6th International Forum ATOMEXPO 2014, organized by the State Corporation for Atomic Energy The main theme of the forum will be“Nuclear Energy – Conditions for Energy Stability.”In considering this theme, forum participants will analyze the main challenges and problems faced by the nuclear industry as well as discuss ways of further developing the world market for nuclear energy. Among the main topics to be discussed are: financing nuclear projects, the competitiveness of nuclear energy in comparison with other forms of energy production, the planning and optimization of generating electricity costs and the final stage of the nuclear fuel cycle. According to forecasts from the International Atomic Energy Association (I.A.E.A.), the number of nuclear power plants in the world will increase dramatically over the next 30 years. Nuclear energy, according to experts, can help increase energy security, reduce the impact of fossil fuel prices, mitigate climate change and make national economies more competitive. The Forum will be attended by representatives of the I.A.E.A., the O.E.C.D., the U.S. Department of Energy, the Ministry of Energy of South Africa and the European Commission, as well as the heads of major energy companies around the world, including Areva, E.D.F. Energy, Npcil and others. To register for the Forum and to receive supplementary information, visit




Russia BEYOND THE HEADLINES A global media project sponsored by Rossiyskaya Gazeta

tangle of pipes links Russia to the E.U. the E.u. depends on Russian energy Stanislav Zhizhnin researcher


In order to full diversify away from Russian gas supplies, Europe would require significant investment and a period of 10 to 20 years. reception and distribution. Among prospective L.N.G. suppliers in Europe, Norway, which can supply about 20 billion cubic meters of gas annually, is the most promising. Other suppliers include countries in the Middle East and North Africa, as well as those in the eastern Mediterranean. These countries have projects aimed at expanding gas production, constructing L.N.G. terminals, and exporting L.N.G.. But each of these projects faces a number of political and economic obstacles that impede their implementation in the near future. Gas supplies from the U.S. and Canada are tied to the shale gas revolution, and further growth in the scale of shale gas production in the coming years may face a number of economic and environmental problems that will act as major obstacles for a number

Russia Beyond the Headlines is an international media project sponsored by Russian daily newspaper Rossiyskaya Gazeta. Its production does not involve the editorial staff of the international new york times. RBTH is funded through a combination of advertising and sponsorship together with subsidies from Russian government agencies. RBTH’s editorial

Stanislav Zhiznin is a professor at the Moscow State Institute of International Relations (MGIMO) and the president of the Center of Energy Diplomacy and Geopolitics.

Russia-EU cooperation on gas has long precedent Vladimir Feigin analyst


ussia and the countries of the European Union have been linked by gas supplies for a long time. The Soviet Union began to supply gas to Europe at the end of the 1960s. Then, the Soviet gas industry was at an early stage of development; supplies were shipped in limited volumes and only to neighboring countries. In Europe, the gas industry was also in its infancy — the development of a field in Groningen in the Netherlands was just beginning. Russian gas and European gas evolved over the same period, and in ways that have created deep ties. The story of the UrengoyUzhgorod Pipeline gives a good history of the relationship. In the 1970s, the framework of the Council for Mutual Economic Assistance (Comecon) realized a project for developing a large gas field in the Urals city of Orenburg and creating the Soyuz Pipeline for gas export.The most dramatic stage was the deal that provided for the construction of the huge Urengoy-Uzhgorod Pipeline, which would provide for the organization of large-scale exports of Russian gas to Western Europe. The construction of the pipeline, which stretches more than 3,100 miles (4,989 kilometers) was a massive undertaking, involving both Soviet and European manufacturers. The pipeline connects the Siberian gas field of Urengoy with the city of Uzhgorod in Western Ukraine. From there, gas can be supplied to countries in Central and Western Europe. The Mannesmann factories in West

Germany were scheduled to provide a significant part of the large diameter pipes for this gas pipeline. Another portion of the pipes would be provided by a mill in the city of Khartsyzsk, in the Kharkov region of Ukraine. The Ukrainian plant had been producing these pipes for some time, but the German pipes were more suited to several sections of the new pipeline. Additionally, the number of pipes needed was so great that no single factory could be expected to produce them. The Italian firm Nuovo Pignone was contracted to provide gas compressors. Unfortunately, however, the project

Today gas markets are developing and the number of alternatives is rising, but there is no place for false illusions. began just after Soviet troops invaded Afghanistan. The United States called for sanctions against the Soviet Union and, as part of the sanctions, the U.S. demanded that its European allies refuse to supply pipes and equipment to build Urengoy-Uzhgorod. Without the pipeline, the entire deal to supply Europe with Russian gas would fall apart. The United States, which was not a direct participant in the agreement, would lose nothing from its collapse, but the ramifications would be serious for many European countries. Nuovo Pignone pulled out of the deal because it was a licensee of the General Electric company and the United States had forbidden any components produced under American licenses to be used in the deal. The German companies, however, decided to supply pipes for the project anyway.

konstantin maler

n light of the Ukraine crisis and the sanctions imposed against Russia by the United States and the European Union, the issue of Russian gas supplies to Europe has become ever more relevant. The question is one of interdependency: Does Russia depend on the E.U. more than the E.U. depends on Russia, or vice versa? After the E.U. summit on March 21, British Prime Minister David Cameron claimed that Russia is more dependent on the European gas market. Cameron noted that in the case of possible E.U. sanctions, the E.U. should diversify gas supplies in the long term in order to be less dependent on Russia. Later, U.S. Secretary of State John Kerry declared that the U.S. would be able to supply more gas than the E.U. consumes. The agenda of the E.U. summit scheduled for June contains a point on the development of a plan to diversify gas supply sources and reduce dependency on Russian gas supplies. According to 2013 data from Eurostat, Russian gas accounted for about 25 percent of total E.U. gas supplies. However, the Baltic states, Finland, and several Eastern European countries are completely dependent on Russian gas supplies, and a number of other countries depend on Russia for up to 40 percent of their gas supplies. Russian gas supplies enable European countries to receive tangible economic benefits that amount to hundreds of billions of dollars provided for heating, power plants and businesses. This directly or indirectly creates thousands of jobs, and provides for the regular functioning of a whole host of core industries. In other words, there is a solid system of mutual economic benefit. According Laszlo Varro, head of the Gas, Coal and Power Market Division of the International Energy Agency (I.E.A.), the E.U. countries are going to remain the largest consumer of Russian gas over the next decade. This is partially because of economic realities, since replacing Russian gas supplies will require significant financial resources, and the price for gas from new external sources may be substantially higher than the price for Russian gas. The E.U. policy aimed at improving energy efficiency is one of the steps taken to reduce dependency on Russian gas supplies, along with increases in the use of renewable energy sources.While energy efficiency policies have proven to be effective, hopes for actively developing alternative energy sources have not yielded great results. The E.U. 20-20-20 program, which aims to increase the use of renewable energy to 20 percent of the total energy balance in the E.U. by 2020, has been stalled. In order to fully diversify away from Russian gas supplies, Europe would have to resort to purchasing gas from other countries, which would require significant investments and a time period of 10 to 20 years. According to calculations by Stanford C. Bernstein & Co., Europe would need a total of $215 billion in investment over the next four years to completely shift away from Russian gas supplies. Moreover, European companies would have to pay fines to Gazprom under long-term take-or-pay contracts that will remain in effect until 2020 (and in some cases until 2035). The main part of the E.U. gas transmission system is adapted for the supply and distribution of pipeline gas. Additional supplies of pipeline gas from Norway are limited. As far as the construction of gas pipelines from the Middle East and Iran is concerned, there are severe risks to implementing projects there because of political instability. Gas supplied from Turkmenistan via the Trans-Caspian pipeline under the Caspian Sea along the

Baku-Turkey-Europe route is also not an option because of the Caspian’s lack of a legal status. What about supplies of liquefied natural gas (L.N.G.)? There are currently about 20 regasification terminals in Europe with a total capacity to receive about 190 billion cubic meters of gas per year. Yet according to British energy holding BG Group, L.N.G. imports decreased from 90 billion cubic meters in 2011 to 48 billion cubic meters in 2013, so the existing terminals are underutilized. Constructing new terminals is not always economically viable because of the specifics of L.N.G.

of projects. Besides that, in order to export L.N.G. from the U.S., it is necessary to invest heavily in terminal construction on the east coast. This is possible only if American companies are absolutely sure that this gas will have a place in the E.U. marketplace at acceptable prices. At this point, market conditions are not favorable for supplying L.N.G. exports to Europe. The Baltic states and Eastern Europe would not be able to provide their populations with heat and electricity without Russian gas supplies. For other E.U. countries, the consequences would not be as catastrophic, but there would nonetheless be significant negative effects on the European economy. Halting Russian gas supplies would result in operational problems for 30 percent of thermal power plants, as well as for over 50 percent of metallurgical and chemical companies. If Russian gas exports were to fall by 25 percent by 2020, the country’s losses could amount to more than $15 billion. In order to compensate for these losses, Russia is activating projects aimed at supplying L.N.G. and pipeline gas to countries in Asia. In addition, Russia is planning to expand L.N.G. exports to China and other countries in the region. If the political problems that have arisen in the wake of the Ukrainian crisis continue, one thing is clear: both sides will experience negative effects, but these effects will be more significant in the E.U. It is also reasonable to assume that the Ukrainian crisis will be resolved and the Russia-E.U. gas supply partnership will develop in accordance with the interests of both sides, including in the framework of the Russia-E.U. Energy Dialogue. Regardless of political developments, significant changes in European consumption of Russian gas are unlikely in the near term given the existing infrastructure and contractual obligations.

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The efforts by the United States to derail the construction of the pipeline was one of the most serious crises of the Cold War. In response to U.S. efforts, the Soviet Union ramped up compressor production to provide the necessary equipment. The production of gas turbines for use in the compressor stations of the new gas pipeline was launched in facilities used for constructing turbines for airplanes and ships. These compressors were inferior to what could have been produced in Italy in terms of their reliability over extended periods of time and their fuel efficiency, but they were necessary to solve the problem and the pipeline began operating on schedule in 1984. Later, a new generation of turbines with competitive indicators of quality was created through the joint efforts of both Russian aircraft manufacturers and Gazprom. The scale of the arrangement to build the Urengoy-Uzhgorod pipeline and provide gas through it was 8 billion cubic meters a year over the course of 25 years. This was one of the first examples of the kind of long-term contracts to provide Russian gas to Europe that ensured the stability of evolving business relationships, even in those years when Russia and Western Europe were part of two diametrically opposed systems pursuing radically different policies. In subsequent years, such large-scale pipeline projects asYamburg-Western Border, Yamal-Europe, Nord Stream, Blue Stream, and a host of others were carried out to provide even more avenues for Russian gas to reach European consumers. A vast and expensive infrastructure was created through these projects. Gas was supplied to the former Comecon member countries on a barter basis. During the 1990s, when there was a transition to cash settlements and these countries faced an economic downturn, their gas consumption also decreased. The need for gas in Western Europe, however, has steadily grown, and Russian supplies, provided on a competitive basis, have likewise increased. There is much to learn from this short excursion into history. Today, gas markets are developing and, overall, the number of alternatives is rising. But there is no place for false illusions. Russian gas is still the most reasonable option for Europe. One potential alternative that has been discussed as a provider of gas to Europe is Qatar. This Middle Eastern state has spent a lot of effort creating more capacity for the production of liquefied natural gas. Taking into account its geographic location, Qatar was expected to supply gas to the three largest gas markets in the world — the United States, the European Union and the Asia-Pacific region. The shale revolution in the U.S., however, closed that market for Qatari gas. This surplus gas poured into Europe, which caused prices for gas to fall. This drop in prices coincided with the reduced demand of the 2008-2009 global financial crisis. At the time, a number of European experts were ecstatic that the value of what were formerly long-term type relationships for gas supplies had decreased. But after a few more years passed, the need for gas supplies in Asia-Pacific increased significantly. Prices were much higher in this region than in Europe and suppliers from Qatar reoriented their flows from the E.U. to Asia. In the E.U., the demand for Russian gas started to rise again — and this demand was satisfied. This was possible thanks to the current longterm contracts. Under normal economic conditions, this demand will continue into the future, and Russia and the E.U. will continue to be linked by pipelines. Vladimir Feigin is the president of the Institute for Energy and Finance and the Russian co-speaker of the E.U.Russia Gas Advisory Council, E.U.Russia Energy Dialogue.


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Development of renewables Depends on the state

Why Russia Needs to develop Nuclear Energy Andrei Frolov Editor



n the past decade, the world has seen a rapid increase in the use of renewable energy, including wind, solar, biomass, biofuels, and small hydroelectric power plants. This increase has been fueled by a number of factors, including the need to lower the impact on the environment and human health (particularly the need to reduce greenhouse gas emissions) and the need to reduce dependency on energy imports, especially since oil prices have risen to, and at times exceeded, $100 per barrel. Over the past few years, global investment in renewable energy development has consistently exceeded $200 billion per year. Between 2010 and 2013, wind power capacity skyrocketed by 150 percent, surpassing 300 gigawatts (GW). Compared with 2010 figures, solar power capacity has almost doubled, reaching 135 GW in 2013. These figures are comparable with the total capacity of the power plants of Russia’s energy monopoly, United Energy Systems, which can produce 227 GW per year. The United States, China, Germany, India, Brazil and Spain are the global leaders in clean energy. A 2013 analysis of the G20 countries showed that all of the G20 countries, with the exception of Saudi Arabia and Russia, have made significant advancements in renewable energy capacity in recent years. According to different estimates, Russian wind power capacity is 13-15 megawatts (MW), comprising less than 0.005 percent of global wind power output. At the end of 2013, Russia’s largest solar power plant, with a capacity of 5 MW, began operating in Dagestan. This, however, is still only 0.005 percent of total global capacity. Against this backdrop, experts sometimes raise the argument that Russia has large reserves of fossil fuels, and that it therefore has no need to develop renewable energy sources. Yet international experience shows that this argument in untenable. The United States is one of the largest global producers of oil and natural gas, but it is comparable to China in terms of renewable energy use. In contrast, Norway, which is the largest producer of oil and gas in Europe, increased its wind power capacity from 13 MW in 2000 to 766 MW in 2013. Today Norway is working to increase that figure to 2 GW by 2020.

Co n v e rt i n g m o n o lo g u e i n to d i a lo g u e Russia Direct is a forum for experts and senior decision-makers from Russia and abroad to discuss, debate and understand the issues in geopolitical relations from a sophisticated vantage point.

Turning the brain drain into brain gain?

According to estimates, Russian wind power capacity comprises less than 0.005 percent of global wind power output. newable energy source’s potential is hardly being met on a national scale. The fact that several regions in Russia, such as the Kola Peninsula, Lake Baikal and the Altai are unmatched in terms of weather conditions for the development of wind energy resources stands in sharp contrast with Russia’s share of wind and solar power production. The good news is that the authorities have started to pay attention to Russia’s need to develop the renewable energy sector. The federal law governing electricity adopted in 2003 contains measures to support the use of renewable energy by facilitating power grid connectivity, as well as obligations to purchase the energy produced by these power plants to compensate for grid losses. However, these measures have failed to bring about any significant positive changes. In 2012 and 2014, the Russian government adopted several stimulus measures with more detailed and concrete targets for renewable energy development. According to these measures, wind capacity must increase from 100 MW in 2014 to 1 GW in 2020, which should ensure a total capacity of 3.6 GW for the period from 2014-2020. For solar power stations, capacity figures are set to increase from 120 MW in 2014 to 270 MW in 2020, providing a total capacity of 1.5 GW for 20142020. Government initiatives are also aimed at developing the use of bio-

mass in the form of biogas, liquid biofuels and solid wood fuel. Yet the federal budget does not provide funding for these activities, which is the main reason behind the lag in renewable energy development in Russia. Of the 28.7 trillion rubles ($822 billion) in funding allocated for the Energy Efficiency and Energy Development state program to be implemented in 2013-2020, only 104.8 billion rubles ($3 billion) are to be provided through the federal budget. Only 1.8 billion rubles ($51 million) will be used to fund the development of renewable energy. Amid a lack of federal funding, grid companies that are obligated to purchase energy to compensate for losses will have to pay higher prices in order to ensure return on renewable energy projects. Grid companies clearly have other priorities for the funds they receive from end users (who, in turn, do not want to pay higher prices). It will soon become clear whether or not the establishment of target indicators will lead to significant changes. There are many methods to support renewable energy development that have yielded significant results on a global scale over the past decade. In order to develop the use of renewable

In 2012 and 2014, Russia adopted several stimulus measures with detailed targets for renewable energy development. energy, it should be understood and acknowledged that past renewable energy initiatives in Russia have not been effective, and the country should start developing plans for further action. These plans should involve all interested parties, primarily the public and business representatives who work in the field of renewable energy. Further bureaucratic experiments in this field will simply preserve the current state of affairs, in which Russian wind power plants (13-15 MW) lag far behind those in Honduras (120 MW). Alexei Knizhnikov is the director of the Environmental Policy Program at the World Wildlife Fund Fuel and Energy Complex. Alexei Grigoriev, a specialist at the Socio-Ecological Union International, also contributed to this text.

ussia inherited its nuclear energy sector from the Soviet Union and can take pride in the fact that the world’s first nuclear power station was launched in 1954 in the town of Obninsk, about 100 kilometers (62 miles) southwest of Moscow. In the 1970s-1980s, the sector enjoyed a period of exponential growth, but this was cut short by the Chernobyl disaster in 1986 and the breakup of the Soviet Union that followed shortly after. As a result, in the 1990s and the early 2000s, the development of installed capacity was in stagnation. In the postSoviet period, only four power units were put in operation. Still, Russia’s existing 33 power units, with a total rated capacity of 24.25 gigawatts (GW) generate about 16 percent of all power in the country. Yet, this is far from the limit of the country’s ambitions. Ten more power units are currently under construction (including two reactors on the floating nuclear power station Akademik Lomonosov) with a total rated capacity of 9.2 GW. The plan is to increase the share of nuclear-generated power in Russia to 25-30 percent by 2030 and to 45-50 percent by 2050, which means the construction by 2030 of some 32 GW in new capacities, although by that time some of the current power units will already be decommissioned. There are several reasons for Russia’s ambitious plans for developing its nuclear resources. The first is that the Russian nuclear sector consists of some 500 enterprises with about 20,000 employees. These employees are divided among four major industry segments: creation of nuclear fuel, nuclear power generation, nuclear weapons maintenance and development, and research at scientific institutions. Russia’s list of nuclear assets includes the world’s most powerful icebreakers, which run on nuclear power. A large-scale program for growing nuclear power ensures a natural development for the sector and provides employment for highly qualified experts not only within the state nuclear holding Rosatom, but also in other sectors, such as machine engineering and construction. The second reason is an economic one. In developing its nuclear energy sector, the Russian government is achieving several goals. By increasing the share of nuclear power in the country’s energy balance, it is possible to maintain economic growth without increasing carbon dioxide emissions and violating Russia’s quotas under the Kyoto Protocol. In addition, the emphasis on nuclear power makes it possible to reduce domestic consumption of oil and gas and reserve these re-

Sberbank Head appointment could benefit yandex continued from PAGE 1

In search of a new strategy for Yandex

RD’s second quarterly of 2014 examines global workforce mobility and the increasing competition among countries for the best and brightest. After the fall of the Soviet Union, Russia became a net exporter of brainpower. Today, however, Russia has significant advantages that could help the country become a magnet for professionals from all over the world. This memo explores 10 strategies Russia might use to attract this international talent.


Saudi Arabia, which started working on its first 1 MW solar power plant in 2014, plans to spend more than $100 billion in order to increase solar plant capacity to 42 GW by 2032. These new sources of energy would provide up to 30 percent of the country’s electricity. Azerbaijan is in the process of developing renewable energy sources as well, seeking to match the European Union standard of 20 percent in the overall energy balance by 2020. Russia’s potential for renewable energy sources is great. Its traditional source is wood, and it uses an estimated 20-30 million cubic meters (70.6105 million cubic yards per year). However, the use of wood and biomass to produce electricity is not widespread. There have been some successful projects that use biogas produced by processing industrial waste, but this re-

konstantin maler

Alexei Knizhnikov

Three major forces drive the future of the digital world: Big data, mobile and social. The first trend is the original stronghold for both Yandex and Google. Now Google is at a point where it has deep enough pockets to venture along the two other avenues — mobile and social — while still investing in data. Its early experiments with social were not so successful. On the other hand, Google’s mobile investments, which include the Android operating system and the Google Play apps store, already have made a profound impact on the market. Yandex, however, can hardly afford such a degree of diversification. The smart thing for Yandex to do would be to find new markets for its core technology. One strategy could be to find a way to penetrate the enterprise I.T. market. The Russian market for enterprise I.T. is three times bigger than that for advertising. Theoretically, Yandex’s algorithms can work for an infinite number of corporate tasks — from processing content to providing complex predictive models for strategic and operational decision-


making. Selling to this market will require a completely new organization and competencies to compete against well-entrenched international majors like Microsoft, SAP, Oracle or IBM. On the other hand, Russia has considerably less digital density than many other major markets, which presents an opportunity for developing something new, uniquely tailored for the country’s needs, as opposed to building on top of vast legacy information technology systems. Yandex has already done this with the search engine, and its huge customer base of small- and mediumsized businesses across Russia is a great asset. These enterprises can be a lucrative market not only for advertising services but also for business decision-making systems, which could be backed by Yandex’s unique expertise in data analysis and would probably work from the “cloud.” If such an application catches up with smaller businesses, it may soon attract the attention of major enterprises. The current turbulent political situation can create both risks and opportunities for Yandex. On the one hand, the company may be vulnerable to sanctions in technology equip-

ment sales to Russia. On the other, exactly these types of sanctions may open doors for the company in the enterprise I.T. market that is now largely catered to by Western majors.

How can Gref help Yandex?

It’s best to view the appointment of German Gref, who served as Russia’s Minister of Economic Development from 2000-2007, in a broad business context. To sustain its growth,Yandex must be looking for ways to expand its revenues beyond advertising, especially as this source may be particularly vulnerable in the context of economic slowdown. The search engine is only the tip of the iceberg of the technical capabilities developed by Yandex. It currently commands what is likely Russia’s biggest team of data scientists, definitely putting the company in the world’s premier ranks for complex information analysis. Having such a team with a proven success record means having a unique strategic asset not only for a corporation or industry, but probably for the country as a whole. However the challenge is to find the business or organizational applications for these technological capabilities, preferably in the most unexpected fields, to gain a first-mover

competitive advantage. Such a search requires broad business erudition and intuition as well as the power to influence the creation of technology ecosystems. Sberbank itself — because of the scope of its banking operations — can become an effective test ground for creating the new generation of analytical technologies that can then be adapted for “export” to other industries and markets. There is plenty of room for technologies of consumer behavior modeling like credit scoring or “next best offer”marketing, and there are plenty of things to do on the enterprise content management side as banking is inseparable from producing high quantities of legal documents. Viewed from this perspective, the head of Russia’s top bank looks like the perfect match for this type of task. Of course, there is also the issue of the scale of Gref’s personality, which can be used to further develop Yandex as one of Russia’s few global brand icons and a model case for development of national business champions in non-resource-driven industries. Vladimir Korovkin is the Head of Digital Research, Institute for Emerging Markets, at the Moscow School of Management Skolkovo.

sources for export, which is far more advantageous from the economic point of view than selling them at discounted rates on the domestic market. Additionally, transporting oil and gas to thermal power stations across Russia is logistically difficult and expensive, which makes exporting them even more cost-effective and beneficial to the economy. Finally, given Russia’s climate and limited opportunities for developing other renewable sources of energy, such as solar power, nuclear energy may be Russia’s best chance to create a viable alternative to fossil fuels to provide electricity and heating across the country. The third reason for developing its nuclear resources is the growing prospects for the export of nuclear technologies. Russia’s nuclear energy sector is becoming a major world exporter of nuclear power units. Russian nuclear power units operate in countries ranging from China and India to Turkey and Slovakia. There are currently five Russian power units being built abroad, with 13 more under contract to be built in the next several years. Discussions are in progress for at least 10 more units. In addition to exporting reactor technology, under these contracts Russia agrees to provide fuel, components, spare parts and services such as maintenance and spent fuel recycling for the duration of the reactor’s life, which could be as much as 60 years. The value of these services to Russia’s economy is far greater than the sale of the reactor itself. Another important reason for the continued development of Russia’s nuclear sector is the country’s security. The existence of a strong civilian nuclear energy sector ensures effective operations of its nuclear weapons complex. In addition, civilian orders keep the sector’s dual-purpose enterprises busy. For example, it is now clear that the Rosatom-funded program for the construction of a floating nuclear power station, which was heavily criticized in its early stages, has allowed Russia to retain its ship reactor technology, which was later used to expand the nuclear icebreaker fleet. This fleet, in turn, is becoming ever more important for the global shipping industry as more goods are shipped through the Northern Sea Route. Nuclear power is important for Russia’s continued economic development for reasons far beyond maintaining military readiness. Keeping up with the latest technologies in the sector keeps thousands of highly qualified Russian scientists employed. It is also Russia’s best chance to develop renewable sources of energy. And nuclear energy has the potential to be an important export for the country, one that perhaps someday could counter the Russian economy’s long-standing dependence on fossil fuels. Andrei Frolov is editor in chief of the magazine Eksport Vooruzheny (Arms Exports).

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Russia and the U.S. enter a new space race

After the Cold War ended, there were great expectations that Moscow and Washington would start ambitious joint space exploration projects while reinforcing each other’s scientific and technical potential. Now, however, the future of joint projects is in jeopardy. Read this thought-provoking Monthly memo to discover if there are any areas in which U.S.-Russia space cooperation is strong enough to overcome mistrust.





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Bolshoi management hopes that new productions will erase the memories of last year’s scandals and once again make the theater’s name synonymous with the highest levels of artistic achievement.


The operatic repertoire in the new season will include Verdi’s “Rigoletto,” “The Queen of Spades” by Tchaikovsky, “The Marriage of Figaro” by Mozart and “Carmen” by Georges Bizet. The season will also feature a children’s opera by Sergei Banevich

Critic Yaroslav Timofeev has noted that there are more Russian names among the directors and choreographers who have been invited to stage productions at the Bolshoi than in recent years.



difficult in such a short period of time,” Urin said at the time of the announcement, “Probably, the plans include some compromises.” According to critic Marina Gaykovich, Urin was cautious in his choices for his first season with the Bolshoi. “The birth of a masterpiece is impossible without some failures, but this the new Bolshoi leadership doesn’t need,” Gaykovich said. “This is why they are taking a children’s opera and one that was performed in Paris 15 years ago.”

Ballet premieres

The 2014-2015 season will also include three ballet premieres. One production that is generating some buzz is the world premiere of“Hamlet,”with music from the symphonies of Dmitri Shostakovich. British director Declan Donnellan was invited to direct



called “The Story of Kai and Gerda.” Two of these productions have been staged before. St. Petersburg director Lev Dodin will be directing “The Queen of Spades,” which he also presented in 1999 in Paris. “Rigoletto” will be directed by Canadian director Robert Carsen, who submitted it in 2013 at the Festival d’Aix-enProvence in the south of France. The directors who have been invited to stage the other operas come from the world of theater. “The Marriage of Figaro,” which will be presented by the Bolshoi’s youth program, will be directed by Yevgeny Pisarev; “Carmen” will be staged by the head director of the Russian Youth Theater Alexei Borodin; and “The History of Kai and Gerda” will be staged by a young director named Dmitry Belyanushkin. Urin has admitted that it was difficult to build a season in only 10 months. “Putting plans together so quickly for the new season was very


plicated negotiations with the heirs of Shostakovich for the rights to his symphonies. Urin, however, is certain that a compromise can be reached. Another addition to the repertoire will be “A Hero of our Time,” based on the book by Russian writer Mikhail Lermontov and set to music by Ilya Demutsky. Director Kirill Serebrennikov, artistic director of the progressive Gogol Center theater, has been invited to stage the ballet. Finally, Urin is bringing back an old favorite,“Legend of Love,” which was choreographed by Yuri Grigorovich and first staged at the Bolshoi in 1965.“Legend” is set to music by Arif Melikhov and based on a drama by Turkish communist poet Nâzım Hikmet. It is a tried-and-true classic example of Soviet choreography. CriticYaroslav Timofeev noted that there are more Russian names among the directors and choreographers this season than in recent years.“If in the last seasons the directors were almost entirely foreigners, this year the reverse is true,” Timofeev said.

Bolshoi on tour the production, and Radu Poklitaru, who choreographed the opening ceremony of the 2014 Sochi Winter Games, will be the choreographer. Donnellan and Poklitaru worked together previously on a production of Sergei Prokofiev’s“Cinderella”for the Bolshoi. Prokofiev’s descendants were critical of the staging, which has com-

But a focus on Russian talent has not put a damper on the theater’s plans for touring. This season the Bolshoi troupe will continue to be one of Russia’s greatest ambassadors. The first stop for both the ballet and opera companies this summer is the United States. The opera company will perform “The Tsar’s Bride,” conducted by Gennady Rozhdestvensky June 12-13, while the Bolshoi ballet will perform


“Swan Lake,” “Don Quixote,” and “Spartacus” in New York July 12-27. In the late fall, the company heads to Japan where it will perform“Swan Lake,”“Don Quixote” and “La Bayadere” in Tokyo and five other cities from Nov. 20 to Dec. 7. The ballet and opera will also appear at the Hong Kong Arts Festival at the end of March 2015, where they will perform “The Tsar’s Bride” and the ballets “Flames of Paris” and “Jewels.” The ballet company will then continue to Brazil in July 2015, where they will present“Spartacus”and another ballet, yet to be determined. For those unable to attend a performance live, the Bolshoi will also continue to show ballets and operas in movie theaters around the world on Sundays during the season. More than 1,000 theaters in 50 countries will broadcast performances both live and on a delayed schedule. The complete list of performances and venues can be found at http:// bolshoi-worldwide-1 and the entire season of performance at the Bolshoi Theater in Moscow can be found at ■DMITRY ROMENDIK RBTH


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Russia’s storied Bolshoi Theater has announced plans for its 2014-2015 season, the first after a series of highprofile scandals roiled the theater and Russia’s opera and ballet world. On Jan. 17, 2013, Bolshoi ballet artistic director Sergei Filin was attacked outside his apartment building in Moscow. Acid was thrown on his face and hands, and he was partially blinded. After a series of surgeries in Germany, Filin was able to retain his sight in one eye. Bolshoi principal dancer Pavel Dmitrichenko was convicted of ordering the attack, although many of the company’s dancers signed a petition vouching for Dmitrichenko’s innocence. Then, in July, as the case was winding its way through the courts, Anatoly Iksanov, who had served as the Bolshoi’s general director for 13 years, was removed and replaced with Vladimir Urin, the director of Moscow’s Stanislavsky and NemirovichDanchenko Theater. Just as Urin was getting his bearings, the Bolshoi’s music director and chief conductor, Vassily Sinaisky, abruptly resigned after just over three years in the position. He was replaced by 36-year-old Tugan Sokhiev. Given the dramatic personnel change of the past year, opera and ballet critics and fans alike anxiously awaited the announcement of the upcoming season, the theater’s 239th.

Opera premieres




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