Page 1

in.rbth.com

WEDNESDAY OCTOBER 15, 2014

Business Report RUSSIA&INDIA THE ECONOMIC TIMES IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

joint projects, production of commercial aircraft, and talks gas cooperation DIPLOMACY: Focus Russia,onKazakhstan, Belarus and Armenia have joined the oil union; on with India, Israel and Vietnam

Eurasian Economic Union: Will it create a new EU or USSR? The Eurasian Economic Union can be a game-changer in promoting regional integration and emerge into an EU-like organisation with unified economic space. ALEXEY LOSSAN RIBR

KONSTANTIN ZAVRAZHIN / RG

T

he presidents of Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan met in Minsk on October 10 and formally dissolved the Eurasian Economic Community (EurAsEC) in order to prepare for the Eurasian Economic Union. Russia, Belarus and Kazakhstan signed the treaty to create the Eurasian Union in May and have already ratified the document, which is expected to come into force on January 1, 2015. “This marks our transition to a new and higher integration stage that will make us more effective in modernising our countries’ economies and making them competitive,” Russian President Vladimir Putin at the summit said. The Eurasian Economic Union agreement brings together 170 million people onto a common market, making it a new powerful centre for economic development. Earlier on October 10, leaders of the EEU signed an agreement on Armenia’s accession to the EEU Treaty. The EurAsEC, during the 14 years of its existence, has contributed a great deal to the Eurasian integration processes, the formation of the Customs Union, the Common Economic Space of Russia, Belarus and Kazakhstan and the creation of the Eurasian Economic Union Within the next decade, the new union should become the foundation for the emergence of an association similar to the European Union. In particular, it prescribes the gradual rejection of protective measures and creation of a common market, including

Leaders gather in Minsk for CIS and Eurasian Economic Community Summits. in the most regulated sectors: pharmaceutics, electric energy distribution, financial services, and the market for oil products. “The Eurasian integration project is not a total copy of the European Union, although in our work we try to take the European experience into consideration and avoid making the same mistakes as much as possible. In the EU, supranational institutions have much broader powers. They conduct a common foreign policy. There is a common currency. This is a whole different level of integration,”

Andrei Slepnev, Russia’s Minister for Trade for the Eurasian Economic Commission, told RIBR. The key objective of the new union says the minister, is to create a unified economic space for the members where the concept of four key freedoms would be manifested: free movement of goods, services, capital and investments, and labour. According to Slepnev, positive results for the economies of the state members have already been observed in the example of the new union’s goods market. “In 2011 mutual

trade began growing faster than external trade – and in 2012 it grew at three times the rate. This jump in turnover is the result of removing the trade barriers and creating a single trade regulation,” he says. The minister underlined that the long-term effects of integration can already be seen. Kyrgyzstan may become a member of the union in 2015, says Slepnev. ”Another effect is the growth in the number of countries and associations that are expressing interest in expanding their partnership with us even as far as concluding free trade agreements. In total there are nearly 40 such partners,” he added. Free trade negotiations, according to Slepnev, are currently underway with Vietnam and a joint study group with Israel and India will soon begin its work. “According to the theory of economic integration, there are five stages of integration: the first stage includes the creation of free trade zones; the second is a trade union; the third is a single economic space; the fourth is an economic union; and, finally, the fifth involves adding political integration to the economic one,” says Alexander Mikhailenko, a professor in the Department of Russian Foreign Policy at RANEPA. He explained that if the EU is at the fifth stage, the Eurasian Economic Union will only go as far as the fourth. “From an economic point of view, this is the highest level of integration. Going to the fifth stage is perfectly appropriate, but Belarus and Kazakhstan have the experience of the Soviet Union hanging over them and worry that Moscow would try to take over again,” observes Mikhailenko.

STATISTICS STATISTICS Ruble/Rupee dollar rates

Stock Market Index

Russian market guide: Undervalued stocks with low P/E ratios

Read more in.rbth.com/world

ONGC offered a piece of Siberian oil pie Experts say the sanctions-hit Rosneft’s strategy is to expand the share of Russian oil in the Indian market. VIKTOR KUZMIN RIBR

R

ussian energy giant Rosneft has made ONGC, an Indian state-owned company, an unexpected offer to acquire stakes in two Siberian oilfields, nearly 49 percent in Yurubcheno-Tokhomskoye and 10 percent in Vankor, Reuters cited its sources as saying. Rosneft is seeking financial resources, and they are searching for partners, say the sources. They want to demonstrate to the US and Europe that they’ve got partners, one of them said. The sanctions of the US and the European Union have cut Rosneft’s access to Western financing and technologies necessary for the development of hard-to-recover oil reserves. Some

Western partners of Rosneft had to freeze their joint projects, agency Prime noted. Partner of RusEnergy, Mikhail Krutikhin, somewhat agrees with the above version. He is convinced that there is no economic logic to these offers. It is not clear why India would acquire equity participation in stationary mining projects that do not need investments and development. Moreover, a large part of their reserves are already sold to Chinese companies. Russia’s offer is pure PR, intended to show the West that even under sanctions there is cooperation, he said. Konstantin Simonov, the CEO of the National Energy Security Fund, has shared his own version with RIBR: “It’s a bonus; a gift; staking out a position on the Indian oil market,” he said. The expert believes that by

attracting a state-owned Indian company Rosneft counts on help in expanding the share of Russian oil on the Indian market. Oil production from these fields presents two challenges - the Siberian climate and the large gas cap over the oil reservoirs, says Oleg Dushin, the Deputy Director of the Regional Investment Company. According to him, the cost of production in such areas rises 2-3 times and is conservatively estimated at $22-25 per tonne. The chief of FOC Macroeconomic Forecasting Department, Ivan Zavision, is convinced that these fields can be quite attractive for the Indian company: high quality oil, enough acceptable risks and major accomplishments in international cooperation between Russia and India. He contends that Rosneft’s key interest today is to attract funds for promising projects. The sanctions have deepened this problem, triggering a more proactive search for Asian partners.

Oil fields: Fact File The Vankor field is located in Krasnoyarsk region of Russia (West Siberia). In the beginning of 2011 its oil reserves under ABC1+ C2 categories of Russian classification were estimated at 3.5 billion barrels (490 million tonnes). Yurubcheno-Tokhomskoe oil and gas field is the second largest project of Rosneft in Eastern Siberia after Vankor. Its development began in 2009 and the reserves under C1+ C2 categories are estimated at 321 million tonnes. Both fields are export-oriented and produce high quality oil. Find more information at in.rbth.com/economics/cooperation

Opinion: What Russians think of sanctions

NATALIA MIKHAYLENKO

PERSPECTIVE

The Russia factor in India-China ties PETR TOPYCHKANOV Foreign policy analyst

S

DOWNLOAD REPORT

eptember turned out to be a complex time for India-China relations. On the one hand, India and China held successful talks during President Xi Jinping’s trip to New Delhi. However, successes on the diplomatic front were tarnished by a three-week standoff between India’s and China’s armies at the Chumar border crossing in Leh. Without a doubt, India and China will try to avoid an escalation of security crises in order to insulate their burgeoning trade and economic ties. In the long term, China will remain a key trading partner for India. Xi’s visit demonstrated that India and China intend not only to stop the slide in bilateral trade seen in the last two years, but also to give a strong impetus to trade and economic ties. However, there is also no doubt that both countries have their own worries. India is wary of not only China’s

territorial claims, but also the latter’s potential regarding nuclear forces and general-purpose forces. India is also uneasy about China’s cultivation of military cooperation with its neighbours, especially Pakistan and Bangladesh. In New Delhi, there are also questions being raised about the nature of the military cooperation between China and Russia. In 2013, exports to China of Russian goods and services through the military-technical cooperation exceeded $1.8 billion. India paid particular attention to two developments on this front: first, in 2012, Russia and China signed an agreement for Amur1650 class multipurpose submarines. Second, Russia approved the supply to China of C-400 air defence systems. India’s concerns about these systems is partly groundless. China is interested in the Amur and C-400 with regard to the situation on its eastern, not its

southwestern, borders, and around Taiwan and the disputed islands in the East China and South China Seas.India’s misgivings stem from two reasons. First, China is free to change the deployment of the weapons and military technology it purchases from Russia. Second, China is free to transfer to third countries military technology acquired from Russia. Moscow can hardly promise New Delhi that Russia-China defence contracts will not result in modern military technologies falling into the hands of China’s allies surrounding India. Not because it does not want to, but because after transferring military technologies to China, Russia is left with either too few or no mechanisms to monitor the subsequent fate of these technologies. Moscow’s military-technical cooperation with both New Delhi and Beijing, therefore, does not allow Russia to stand apart from India-China disagreements. Russia is actually exerting an influence on the balance of power between India and China. This influence is far from being resolved, but it must be reckoned with in both New Delhi and Beijing. Furthermore, Beijing might have many more reasons to worry than New Delhi. The military-technical cooperation between Russia and India is significantly larger than that of Russia and China. In 2013, Russian exports to India through the military-technical cooperation amounted to $4.8 billion (30.6 percent of the total amount). Russia is cooperating with India in domains

in which there is no partnership with China, such as missile production, the construction of nuclear submarines and aircraft carriers. The Russian-Indian military-technical cooperation has two distinctive features that are unacceptable when it comes to cooperation not just with China, but with any other country. First, Russia is willing to develop with India projects that have strategic significance like cruise missiles and nuclear submarines. Second, both countries are interested in jointly developing and producing military technologies. Against this backdrop, Russia should reassure India that technologies with strategic importance will not be transferred to China. Russia could insist on China’s strict adherence to a ban on transferring Russian military technologies to third countries. Russia, India and China could initiate an intensive programme of trilateral military exercises that would bolster trust among their armed forces. Russia’s status as a supplier of military products to both India and China should not be seen as a source of anxiety by either New Delhi or Beijing. This status gives Russia the potential to play a more visible role in stabilising relations between India and China. However, it will be ultimately up to India and China to maintain balance in their relations.

Read the author’s blog in.rbth.com/blogs/outsidersinsight

Russia and India Business Report  
Russia and India Business Report  

October, 2014

Advertisement