Examination of Witnesses (Questions 44-59)
ANNE ALDIS,
PROFESSOR YURY
FEDOROV AND
JOHN ROBERTS
16 MAY 2007
Chairman: Ms. Aldis, Professor
Fedorov and Mr. Roberts, welcome this afternoon. We are sorry
to have kept you waiting for a few moments. Our Chairman is currently
indisposed, and I have been asked to chair the Committee this
afternoon. We shall at some point touch on energy security matters,
and I want to declare an interest, which is registered in the
Register of Members' Interests, in Royal Dutch Shell plc. Thank
you.
We are, in fact, going to start with
energy security matters.
Q44 Ms Stuart: At a
recent conference a delegate said that it was not so very remarkable
that the European Union had expanded eastward but that it was
much more remarkable that Gazprom was expanding westward. At a
similar conference it was suggested to us that in about 18 months
to two years' time Russia would be incapable of fulfilling both
its export commitments on energy and its own internal needs. In
that context, do any of you have a particular view of whether
Russia will be inclined to use energy almost as a tool of foreign
policy?
Chairman: We have a lot
of questions to get through, but please don't feel that you all
have to chip in on every one. However, if there is something you
want to say, please come in. I hope that that will help you. Who
would like to start?
John Roberts: Russia explicitly
uses energy as a tool of foreign policy. At the same time, it
seems to use it in very different ways with regard to whether
it is addressing it to the former Soviet countries or to western
Europe. The problem that we have is that, by and large, Russia
has been a reliable supplier to western Europe—to the traditional
EU—but it has been anything but a reliable supplier to its
former Soviet Union partners. The problem that Russia may not
understand is that in a globalised world, just because you have
been reliable to one set of customers, it does not necessarily
mean that they will continue to consider you as likely to be reliable
in future.
Gazprom's westward interest can be viewed
in two ways. You can regard it as a way in which Russia would
like to continue to expand its policy of having control along
all links of the energy chain or you can also say that in an interdependent
world that makes it vulnerable, because it then starts having
assets outside its borders, and those assets, by definition, are
not wholly under its control.
Q45 Ms Stuart: Can
I take you a bit further on what you said about having reliability
of supply in one part of the world and not the other? Can you
envisage a scenario in which Russia would use energy supply to
the EU and behave as it has done with other customers? In particular,
do you think that it has been unhelpful that some European Union
member states have struck their own deals with Russia and have
not insisted on an EU-wide policy?
John Roberts: Taking the
two questions separately, I do not think that Russia necessarily
has any particular concept of using energy in that way as a sword
of Damocles over its major customers in, to put it bluntly and
use the old-fashioned term, west Europe. What was the second part
of your question?
Q46 Ms Stuart: It was
about EU member states individually—
John Roberts: Yes, privileged
partnerships. I think that that highlights the fundamental problems
that we have in energy security. There are various ways in which
you can achieve energy security. You can have a concept that is
the official EU understanding—it is largely the British
Government understanding—that energy security is based on
interdependence; you can have a Russian policy that is, in contrast,
based on the principle of control; and you can have a privileged
partnership—perhaps a German example would be a good one.
That is what you seek. The problem is that those arrangements
are all valid in their own context, but they are mutually exclusive,
so when countries are seeking privileged relationships with Gazprom,
it probably means that they get an advantage and that their colleagues
or neighbours do not.
Q47 Ms Stuart: Given
that you say that those two kinds of relationships are mutually
exclusive, how much hope have we for the EU-Russia summit that
is coming up, where we are supposed to have coherent, not mutually
exclusive policies?
John Roberts: The absolute,
bottom-line logic of the fact that the European Union is just
about the world's biggest gas consumer and Russia is the world's
biggest gas producer, is that the two, in gas in particular—gas
is the core issue—should have a partnership. But if you
are going to have a partnership, you have to have common rules,
principles and regulations. The €64 billion question is how
you develop those common rules and principles. That certainly
should be the goal; what is not quite so clear is whether it is
an attainable goal.
Anne Aldis: I should say
at the outset that I am speaking in my capacity as an expert,
rather than as a civil servant employed by the Ministry of Defence.
Therefore, what I say in no way represents the views of Her Majesty's
Government or the MOD.
To answer the first part of your question
with a little example—I would not want to raise the profile
of the example as yet—what you said has already happened
in the case of Estonia in the recent disturbances, in a small
way. It may have been purely coincidence that the pipeline was
closed for maintenance; it might not be.
Professor Yury Fedorov:
I would like to comment a little. I think that, basically, Russia's
role in European energy security is ambivalent. On the one hand,
Russia has enormous resources of gas and large resources of oil.
Russia is in geographical proximity to Europe. There is an established
and expanding system for the transportation of energy to Europe.
However, at the same time there are serious concerns about the
reliability of future supply, and I think that one of the basic
problems of energy security for both Russia and Europe is whether
Russia will be able to avoid or prevent a serious production crisis,
especially in the gas industry, and whether it will be able both
to fulfil export obligations and satisfy domestic needs.
At the same time, there is an idea of
using energy supplies as the political lever, but I have serious
doubts whether Russia may practically use gas supply to Europe
as a kind of political lever, because Russia is more dependent
on Europe in terms of export revenues, technologies and so on,
or perhaps at the same level of dependence as Europe in depending
on Russia as an energy supplier.
Q48 Mr. Horam: I was
very interested in what you just said, Professor Fedorov, about
the likelihood or possibility of Russia not being able to deliver
to the west, and so forth. Figures from the International Energy
Agency suggest that Gazprom's production may fall by as much as
25% by 2015. At the same time, as you indicated, there will be
rising domestic demand and possibly some diversion of resources
to the eastern countries. Do you think that this is a serious
risk?
Professor Fedorov: According
to many expert assessments, there is a very serious risk of production
crisis, especially in gas production, and yet it is not inevitable.
The problem is that domestic demand is growing, and domestic supply
is growing.
The next point—it is the most important
point, in my view—is that the investment strategy of Gazprom
is insufficient and Gazprom is under-investing in the development
of new fields, especially in the Yamal peninsula, which contains
the most promising Russian gas reserves. Gazprom prefers to invest
substantial amounts of money in the development of Central Asian
gas fields rather than developing gas fields in Russia's territory.
That is a serious threat. If that practice continues, I think
that the probability of a crisis in gas production will grow.
Q49 Mr. Horam: How
far is the poor investment a reflection of the Russian attitude
to foreign investment, for example at the BP field in Siberia,
and so forth?
Professor Fedorov: I think
that most experts in Russia understand that under-investing is
a serious threat to Russia's own domestic energy security, yet
the problem is that Gazprom and its export revenues are used for
many purposes. They are a very serious source of economic growth
in Russia, and Gazprom is investing in different projects, many
of which have nothing in common with gas production. For instance,
figures for the years 2000-06, show that Gazprom invested something
like $12 billion in gas production, but at the same time, it invested
for other purposes not relating to gas production or transportation.
That means that $30 billion will be invested in inquiries about
oil companies such as Sibur, and others such as Sibneft, which
are worth $18 billion. That means that investment in gas production
is much less than investment in other projects not related to
this purpose, which is a fundamental mission of Gazprom. At the
same time, according to the Russian Government and independent
assessments, it is necessary to invest about $10 billion or $15
billion per year into development of the new gas fields and maintaining
the source of current gas production. The figures are, in my view,
rather alarming.
Q50 Mr. Horam: Do you
think that that political approach is damaging the economic approach?
Professor Fedorov: I think
so.
Q51 Mr. Moss: What
are the prospects that Russia will implement the energy charter
treaty and its transit protocol?
John Roberts: The Russians
have a rather peculiar attitude, because they say that in many
ways that they that the energy charter treaty is passé
because it was constructed in a different era. At the same time,
they also said that they believe in its principles. I would have
thought that the German approach—which is that the principles
contained in both the charter treaty and the transit protocol
are incorporated into the new partnership and co-operation agreement—is
an intelligent way forward. If that is required to get Russian
off the mental hook of saying that it does not want to be subjected
to what it calls an old treaty, the most important thing is that
the principles that are contained, both within the treaty and
the transit protocol, have the force of law. The partnership agreement
must, in effect, take the form of a treaty in itself.
I do not think that anybody should be
hung up about the energy charter per se. The key point is to ensure
that the key provisions of the treaty and the protocol are applied
to Russia.
Professor Fedorov: If I
may add, there is very little probability that Russia will ratify
the transit protocol because Russia—or it is better to say,
Gazprom—is interested in the control of central Asian gas
to Europe. If Russia ratifies the transit protocol, that means
that Turkmenistan and other central Asian countries will have
a legal right to transport and sell their gas to European consumers
directly without mediation of Gazprom.
John Roberts: I would completely
agree with that, and that is exactly why the Government wanted
an energy partnership agreement with Russia. The point about transit
for central Asian countries was included because the bottom line
is that, under current circumstances, if Russia is going to meet
anything like its anticipated obligations, such as its export
levels to Europe, it will require to do that on the back of importing
cheap, central Asian gas, which, whether it is transported into
Europe or is used in Russia itself, simply becomes a way of delaying
what some people consider to be necessary: the reform of Russia's
internal energy consumption pattern. That consumption pattern
means that Russia uses roughly three times per capita as the EU.
So long as that happens, a large element of wastage limits availability
of gas on a commercial basis to any purchaser whether in Russia
or the European Union, which is what we are interested in.
Q52 Mr. Moss: Do you
therefore believe that, for progress to take place in that area,
western Europe must accede to Gazprom demands of greater control
over the transit?
John Roberts: I would have
thought that you could look at it from a completely different
perspective. You could look at it from the perspective of how
you make sure that central Asian producers do not have to suffer
from the current situation whereby, if they are lucky, they may
be able to negotiate a price of $135 per 1000 cu m for their gas
or perhaps a little more, while Russia sells gas to European customers
for close to $300. The ideal way, because the infrastructure is
there, is to enable central Asian customers to export directly
to Europe at something approaching western commercial prices,
and paying obviously a fair transit fee to the Russians for use
of the existing system. If that is not possible, you have to address
the alternative of how to get gas out of central Asia in manner
that enables central Asian producers to get something close to
world market prices.
Q53 Mr. Moss: Perhaps
that means new pipeline development going south.
John Roberts: Going south,
perhaps transport across the Caspian sea. It does not mean so
much to China because China will probably relate its gas pipelines
and try to tie the price into coal, and keep it limited from that
perspective. But it certainly means new pipelines to put Russia
in a competitive position rather than in a control position.
Professor Fedorov: The
only possibility of European consumers having direct access to
central Asian gas is to build a trans-Caspian pipeline. That is
under discussion at the moment, yet the possibilities and prospects
of the realisation of the project depend to a large extent on
the availability of enough resources of Turkmenian gas. If there
was not enough Turkmenian gas, the project would be economically
ineffective.
Chairman: We shall now
move to another aspect of security in Russia, which is Russia
and the United Nations.
Q54 Sandra Osborne:
The record of Russia and recent key issues that have come before
the United Nations have been mixed. What role does Russia see
for the United Nations in the international system?
Anne Aldis: Russia is quite
clear. It is the United Nations that confers legitimacy on things
like decisions to deploy armed forces, international peacekeeping
and so on. Russia is very keen to see the United Nations as an
international arbiter with legitimacy, force and the ability to
engage all member nations in a dialogue. It has been very clear
to the Russians that, when deployments of force, for example,
to Iraq or to Kosovo take place under United Nations resolution,
Russia is very happy. When they take place, perhaps under the
EU or NATO umbrella, Russia does not see that as conferring any
legitimacy whatever.
Q55 Sandra Osborne:
Does Russia have a position on the reform of the Security Council?
Anne Aldis: I could not
say.
Professor Fedorov: The
logic of the Russian position is really very simple. Russia is
a permanent member of the Security Council. That gives Russia
a right of veto on any questions that are decided by the United
Nations. At the same time, in cases like Iran or perhaps North
Korea the practical position of Russia in the Security Council
is such that the council is not able to make decisions that may
result in the effective resolution of some problems. There is
some controversy in its position.
Q56 Sandra Osborne: Is
there anything the UK can do to strengthen co-operation with Russia
within the Security Council?
Professor Fedorov: I think
so, yes.
Q57 Chairman: In what
way? [Interruption.] That is just the Division Bell. Do
you have a quick two or three-sentence answer, or do you want
to think about it a bit more?
Professor Fedorov: I am
sorry?
Q58 Chairman: I asked
you in what way could the UK strengthen the involvement of Russia
in the United Nations.
Professor Fedorov: Well,
I think that the UK as well as other permanent members of the
UN Security Council could involve Russia in a more pragmatic position
by doing two things.
Chairman: I apologise, there is
no time for a longer answer. We have to go to vote in the Division
now. The Committee will reconvene in 15 minutes' time.
On resuming—
Chairman: We have had our 15 minute
break so we can now get back to the points you were making, with
apologies.
Professor Fedorov: I would
first like to apologise for my bad knowledge of parliamentary
practice here in the UK.
To continue my answer, first, I think
that it is important for the UK and other western countries to
develop a practical and coherent vision of solution management
for the problems that are under discussion. Secondly, it is important
to ensure Chinese co-operation within the Security Council. That
is the most important point, because I do not think that Russia
is ready to be alone in the Security Council.
Q59 Andrew Mackinlay:
Referring to page 12 of the brief, the Ahtisaari plan is an issue
that is looming up on the Security Council. The signals from the
Kremlin indicate that it will not sign up to the plan. It seems
that we are heading for a major bust-up on the issue. Will you
discuss that? Here in London, it is said, and I quote, that "Russia
will come round". My feeling is that it will not. There is
a misread, and it is quite a grave situation. To complete the
scenario, there is the possibility of the plan not getting through
the Security Council and the EU or a wider group of western countries
giving recognition to Kosovo, or of Kosovo unilaterally declaring
independence, which would have severe consequences. What say you?
Professor Fedorov: Moscow's
official position is well known. Its position is that any solution
of the Kosovo issue is to be approved first by Kosovars or Kosovans—I
do not know which of those words are used in English—and
by Serbia. If Serbia does not approve of the Ahtisaari plan, Moscow
will automatically veto it, to follow the logic of its position.
Yet, in my view, Russia's practical position and policy on the
question is to use the Kosovo problem and voting in the UN Security
Council as a kind of bargaining chip as regards the broader context
of its relationship with western countries. Perhaps the Kosovo
problem could be the object of a deal between Russia and western
countries, such as the United States.
Anne Aldis: It is quite
clear, as Professor Fedorov says, that Russia will not sign up
to something that does not satisfy Serbia, but there seems to
be have been some movement in the Russian discourse in the past
year. It has moved away from saying that Kosovo will set a precedent
for other breakaway regions such as Transnistria, Abkhazia and
South Ossetia. There was the idea that what went for Kosovo and
its independence could be applied, as a matter of principle, to
those regions or countries, but Russia has stopped saying that,
which might indicate that its game plan is slightly more complicated.
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