Examination of Witnesses (Questions 140
- 159)
THURSDAY 25 OCTOBER 2007
Sir Roderic Lyne and Mr Charles Grant
Q140 Lord Anderson of Swansea:
I thought I heard Mr Grant say that there was very limited governmental
involvement in cultural exchanges. Certainly at one level there
is—when the Kirov comes here that will be so—but there
will be a very important governmental involvement and EU involvement
not just, as Sir Roderic knows all too well, with the British
Council and the governmental cultural agreements but also in terms
of the encouragement or otherwise of Russian studies in our university.
For example, I am old enough to recall the Hayter money which
was in the 1960s I think to encourage Russian studies. That seems
to have run into the sands. To what extent do you think there
should be greater encouragement of Russian studies and the Russian
language generally in European universities as an important priority
of the European Union, with all the other pressing matters, and
perhaps Sir Roderic could say a little more about the relevance
of the British Council cultural exchange and the Russian view
of those cultural exchanges with the West?
Sir Roderic Lyne: On the first point I can offer
some small encouragement which is that a union of three universities
based around the School of Slavonic and East European Studies,
which has the rather complicated acronym of CEELBAS, the Centre
for East European Language-Based Area Studies, has recently been
awarded a large grant from government funds to promote particularly
post-graduate studies not only in Russian but in East European
language-based areas, and I am the chairman of the advisory committee
of this particular initiative. I think that there is at the moment,
because of the expansion of trade, a very high demand for Russian
speakers, and the prospects for graduates looking for jobs will
be more attractive. The problem after Hayter was that we were
training Russian graduates who then could not get work in their
field. Now it is rather different so one hopes that this pull
factor will encourage more people to develop language skills.
Q141 Lord Anderson of Swansea:
That is a UK initiative rather than an EU initiative?
Sir Roderic Lyne: CEELBAS is a UK initiative.
Q142 Lord Anderson of Swansea:
Are there similar initiatives at an EU level?
Sir Roderic Lyne: I am afraid I have got no
idea at all.
Q143 Lord Anderson of Swansea:
Should there be?
Sir Roderic Lyne: I think a lot of the EU's
effort in Russia should be put into areas relating to education,
and I have always argued that in discussions with the EU, because
I really do think that investing in the next generation in Russia
is probably the most helpful thing we can do. On the British Council,
I had a letter from the British Council last week telling me,
rather sadly, that they were going to, not formally close nine
of their regional centres in Russia but transfer them to local
partners, so I think the British Council label is going to go
off them. I was glad to be told by the Council that they are going
to remain in Moscow, St Petersburg and Ekaterinburg. They have
been under attack for the past four years. It has been a backhanded
compliment to the effectiveness of their work that rather old-fashioned
Soviet-style forces have been attacking their work. I think it
is has been enormously important and that they have sown seeds
that will eventually germinate in Russia. There have been some
provinces in Russia in which every single English teacher has
belonged to the local British Council resource centre. In the
Krasnoyarsk region the British Council helped to promote a very
important reform of the local educational system, which one hopes
will then get rolled out in other areas. I think it has been an
example of what we should be trying to do in Russia. The Council
was attacked because it had a British Government label on it and
because people were looking to retaliate against the British Government,
and they have had a tough time as a result. However, that does
not invalidate what they were doing at all.[1]
Mr Grant: Could I add to that? I am a director
and trustee of the British Council so I have taken a close interest
in their work in Russia and, like Rod Lyne, I have been to see
the work they have done in Krasnoyarsk on education, which is
extremely impressive. I think it is very, very regrettable that
they are having to close their regional offices. I know they say
they are transferring them but effectively they are pulling out
and it is very regrettable. I gather there was no choice and I
believe that there was no choice, but I do hope they will try
to go back when the climate warms up, if it warms up, because
for a very small amount of money they do a tremendous amount of
good in giving a window to the world for some of the people living
in these provinces. I know they are staying in Moscow, St Petersburg
and in Ekaterinburg but I think the people of Moscow and St Petersburg
frankly need them rather less. In parenthesis, I would like to
say the British Council is not present in Belarus or Moldova which
I would say is regrettable. I think it should be present in those
places. In terms of what the EU does, I believe that the EU Erasmus
Mundus programme does have links with Russian universities but
I am quite sure that it should do much more than it does. I agree
with Rod that the more contact we can establish with younger people
the better. I do not know exactly how many Chevening Scholarships
the British Government makes available to Russians every year,
but I think the number is quite limited and I gather from the
British Council which manages this programme for the Government
that the demand from really excellent candidates for these places
is massively higher than the number of places available which
I think is a very small number, and I think it would be money
very well spent to make more Chevening Scholarships available.
Lord Lea of Crondall: There is public
money surely in the Smith Institute projects as well. Is that
something that has come your way?
Q144 Chairman:
The John Smith Memorial Trust.
Mr Grant: I am aware of what they do and I think
it is very good. I do not know where they get their money from,
to be honest, but I think it is very good what the Smith Trust
do.
Q145 Chairman:
We have had a useful initial discussion and to some extent the
first of the questions on the fundamental objectives of European
Union policy with regard to Russia has been answered by Sir Roderic
in his opening remarks. I wonder whether he would like to say
something about what he feels the EU has to offer in the context
of negotiations and how can it best influence Russia's thinking
and policy?
Sir Roderic Lyne: I think the EU has got a very
large amount of leverage because it is Russia's largest trading
partner. The EU should not think itself into a situation that
it is dependent on Russia because of the amount of gas that is
supplied by Russia to the European Union because almost the only
profitable market for the sale of Russian gas at this moment is
the European Union. I think Gazprom is more dependent on the European
Union than the European Union is on Russia. That is only one aspect
of the trade. The largest amount of foreign direct investment
going into Russia comes from the European Union. That is a figure
that has shot up in the last two years from US $13 billion and
this year is expected to exceed US $50 billion. The aspirations
of a lot of the Russian people are to move towards a European
standard of living. I think this is their benchmark; their benchmark
is not China, it is not the United States, it is Europe. This
is where they come to do business; this is where those who can
afford it wish to have their children educated; this is where
they go on holiday. They feel more at home in Western Europe and
the European Union than they do in other parts of the world, and
I do not think we should underplay this.
Mr Grant: I would perhaps say following on from
that I do think there are some very small signs of encouragement
that the EU is beginning to learn to think as one on Russia rather
than as 27 separate Member States. I say "very small"
signs, but I think we have seen it this year, largely in response
to Russia's behaviour—and I agree with Rod Lyne that if
we can hold a united position on Russia then we clearly have more
influence over it because the Russians respect power—at
the Samara Summit between the EU and Russia in May when Merkel
publicly criticised Putin for not allowing demonstrators to travel
there. He was really riled about this and I saw this when I myself
was part of a group that met Putin at Sochi in September where
he referred back to Merkel's criticism of him, and then produced
a counter-criticism about how the Germans often arrest demonstrators
and the German police treat demonstrators so badly, so he is clearly
very upset by that. Secondly, of course we had a statement on
Litvinenko giving some solidarity with the British after the expulsions,
and it was not certain that we would get that statement because
some other Member States did believe that we overreacted and that
it was the wrong thing to do. I know a lot of German diplomats
felt that, but everybody signed up to that statement. I was not
there but those who did attend the informal meeting of the EU
Foreign Ministers in September did report back that there was
a mood that even if some of those present did not welcome the
prospect of an independent Kosovo, it would be quite wrong to
allow the Russians to decide the issue of Kosovo's future, and
if the Russians did bully us in this way then we should not allow
them to and we should stand together on Kosovo. Some of the governments
which do not really want an independent Kosovo are now taking
the view if that is what most EU countries want they should go
along with it. I think there is a small feeling of solidarity,
encouraged to some degree by the change of leadership. Berlusconi,
Chirac and Schroeder have gone and they did take the view that
you should never ever criticise Mr Putin on anything. Their three
successors are different. Prodi is not particularly critical of
Putin but he has not, like Berlusconi, said that Putin is the
world's greatest democrat. Clearly Sarkozy is very different to
his predecessor. He accused Putin in his August speech to the
Assembly of French Diplomats of behaving with a certain brutality
in his use of energy policy. This is a different world and I think
the new Government in Poland—of course it is very early
days yet—will help because this mood of greater unity toward
Russia has been rather undermined by the Poles, in my view, taking
a rather extreme, sometimes antagonistic, view on Russia, although
of course they have plenty to be upset about because the Russians
have behaved very badly to Poland. However, I think the new Government
in Poland holds out a promise of a more middle-of-the-road view
on Russia, so I think there is a real prospect of Europeans learning
that they can achieve more in dealing with Russia if they have
a common line.
Q146 Lord Hannay of Chiswick:
Following that point, would either of you feel that it is correct
to characterise Russian policy as fundamentally that of "divide
and rule" politics towards the European Union, that they
show no interest whatsoever in doing business with the Union unless
the Union shows a degree of unity that forces them to do business
with it, and that over this period, which Rod Lyne described as
fairly lengthy, at least the next five years, what you have said
about the desirability and effectiveness of unity is going to
be true in spades because there will be continuing Russian efforts
to divide and rule?
Mr Grant: Yes I do. I think their policy is
very much divide and rule. They say, and I have heard Putin say
they would like a strong, united Europe but I do not believe it
for a minute. There is one kind of united Europe they would like
which is a Europe united on an anti-American position, but rather
like the Chinese they have understood that if Europe does take
a common view it is not going to be the Chirac/Schroeder Europe
as a counterweight to the US model at all. I think they have a
particular problem in dealing with the EU in two respects. Firstly,
Russians do not respect small countries at all. It is part of
their view of the world, because they are very big, I suppose
to be fair to them, and when they see a small country holding
the EU Presidency or a small country blocking an EU policy they
say, "This is not serious. Why should we take your club seriously
when you allow these little countries with tiny populations and
tiny economies to decide things?" They just do not get that
in the EU small countries are important. Secondly, on EU institutions,
they really do not like the European Commission at all. I suppose
many people in this country would agree with them that it is a
complicated, arrogant, bureaucratic, difficult organisation to
deal with but, nevertheless, the fact the EU has delegated certain
powers to the Commission, particularly in areas that matter to
the Russians such as energy policy, trade policy, the rules applying
to their companies in Europe, is something they find very hard
to cope with. Supra-nationality or the post-modern world, to coin
Robert Cooper's phrase, is not a world they are comfortable in.
Russia is a very, very modernist state and it has an old-fashioned
19th Century view of great power politics, and the EU does not
fit in with their view of the world very easily, in my view.
Sir Roderic Lyne: I fully agree with what Charles
has said. It is a very old tactic of divide and rule and they
do prefer to handle relations bilaterally with big countries in
Europe. Very few Russians understand how the European Union works.
They absolutely fail to understand the notion of the acquis communautaire.
In the early 1990s there were some extremely unrealistic ideas
that Russia could very rapidly become a member of the European
Union, which showed how little it is understood. Now there is
a lot of disillusionment around; there is a sense that they have
been rejected. Neither proposition is true. It is going to take
some years, I think, for a more sophisticated understanding to
arise. I think it is particularly important that, when we are
dealing with Russia, we do not fall into the trap—as we
saw in recent years before the advent of Chancellor Merkel who
has a very good understanding of Russian and I think has handled
policy superbly—of allowing ourselves to be picked off one
against the other. I remember a clear example of this five or
six years ago, which was when the Chechen representative Zakayev
went to Denmark for a conference and the Russians punished the
Danes in every way they could. They more or less isolated them
within Russia. There was absolutely no solidarity from the European
Union behind the Danes when this happened, which was deplorable.
As far as this country is concerned, yes, we are having a tough
time with Russia at the moment but we are only part of a wider
picture in which the Russian relationship with Western Europe
and the United States has gone to a very low point. I think it
is completely in our interests when we have to deal with something
like the Litvinenko affair to do it on the widest possible basis
and to actually have support, as again we had from Chancellor
Merkel, from our European partners.
Q147 Lord Crickhowell:
We have really moved on a question, and almost dealt with the
one that I was going to come back to, which is this whole questions
of relationships. We have heard in previous evidence that really
the Russian attitude has changed from a view of almost total disinterest
in dealing with Europe; and puzzlement and bewilderment about
how it operated, which you say is still there; to them finding
that on some issues like on World Trade negotiations and so on
that it was a force that it really had to recognise; yet wanting
to exploit the differences and wanting to deal with the big states.
Then Europe, in pulling together and trying to get some unity,
has the difficulty that the new small states have sometimes taken
very different views and attitudes, and it has found it difficult
to find common ground for that reason. In earlier evidence we
have heard that on the whole that great gulf between the new members,
the small states and big Europe, has begun to improve and there
is more common ground being found. Do you see Europe beginning
to find a way of dealing with its new structure and find common
ground? Although I understand Russia likes to deal with the big
powers, insofar as Europe does find common ground on big issues
like trade, they are surely going to want to deal with Europe
forming itself in that situation as a big power in a sense?
Mr Grant: Yes, there are Russian technocrats
in the system, the trade negotiators, who do appreciate the merit
of the EU and understand it, but there is a huge lack of knowledge
of the EU in general in Russia, particularly in the think-tank
community, as Rod said. My worry about European unity towards
Russia, despite what I said a moment ago about small signs of
a greater solidarity emerging, is in the energy field because
the different European governments still have very different perceptions
of their own self-interest and their own national interest in
how to deal with Russia. The counter-argument to what we said
is that so long as we have very different views on energy, we
will have different policies on Russia, which will affect areas
other than energy, and the Russians will continue to divide and
rule. We see this where Gazprom has long-term supply contracts
with quasi monopoly energy companies in Germany, France, Italy,
Spain and others, and the governments of Germany, France, Italy
and Spain are rather reluctant to support the Commission's plans
to completely liberalise the European energy market and go for
so-called unbundling, separation of supply from distribution.
My own view is that the Commission is probably going to get half
the cake and it will make some progress here, but the European
governments are very divided on this. One reason they are divided
is that some are more dependent than others on supplies from Russia.
Those, like Germany, which are dependent on supplies from Russia
are reluctant to do things that could annoy the Russians in the
energy sphere. That is part of it, so there is a great lack of
unity and solidarity in the energy sphere, and I think until we
work out a more common line there the Russians will continue to
divide and rule.
Q148 Chairman:
Sir Roderic, is there anything on that point that you would like
to add?
Sir Roderic Lyne: It is extraordinary that we
have a Single Europe Market but we do not have a Single European
Energy Market. If Europe is going to become serious in its dealings
with Russia it has to find a way of adopting a common policy that
respects the fact that our markets are mostly run by private sector
companies. It is not some grand deal and it ensures that Gazprom
(or any other Russian company but we are talking really about
Gazprom here) trades with Europe on a level playing field and
not as a political entity. I think Europe is grinding towards
a realisation of that. Russian behaviour has forced the Europeans
to face up to the fact that they cannot afford to be too dependent
on Russia, both because, as Charles said earlier, the Russians
are failing to increase their production, and also because they
have shown from time to time that they are ready to use energy
as an instrument, so I would put this at the very, very top of
the list of subjects on which Europe now needs a more effective
and co-ordinated policy. I think that is viable but difficult;
it needs a lot more work. There are some great experts in this
field, and I am not one of them, but I hope that you will hear
from some of them, people like Dieter Helm, who wrote a superb
article on this subject in September.
Q149 Chairman:
There is a very good article in the Financial Times this
morning by Daniel Yergin and Simon Blakey of Cambridge.
Sir Roderic Lyne: Yes, a little unrealistic.
They are great experts but I think they are over-optimistic in
thinking that you can actually persuade the Russians to adopt
a more liberalised internal model in the near future, so I think
they are founding their suggestions on slightly sandy ground,
unfortunately. I would love to believe it but I do not think it
is true.
Q150 Lord Anderson of Swansea:
What I think our witnesses are pointing out is a possible divergence
in terms of EU solidarity between the political superstructure
and the economic substructure. There may or may not be improvements
in solidarity, for example, on matters like Kosovo, but that is
still a question mark because of the interests of countries like
Spain and the Basques and so on. It is important that there has
been a change of senior leaders, but how can one get out of the
long-term contracts in terms of gas and oil supply which have
been agreed, which are for about 30 years in some cases? The economic
side is going to prove extremely difficult and even very strongly
pro-European leaders like Prodi seem to be very happy to see their
oil and gas companies reach these long-term contracts. If there
are such long-term contracts are you suggesting that they be renegotiated
or has the pass already been sold in terms of economic solidarity
in this key energy sector?
Mr Grant: Others are more expert than me on
this particular area, but my understanding is there is nothing
particularly wrong in themselves with long-term contracts; they
are not necessarily incompatible with the Commission's efforts
to unbundle supply from distribution, therefore such contracts
need not be banned or necessarily revisited. The problem I think
for Gazprom is that they want to get control of distribution networks
in Europe and they would not be able to do that under the EU unbundling
proposals. If they are a supplier then they cannot also be a distribution
company. That is a problem for Gazprom. There is a second problem,
the so-called "Gazprom clause" which the Commission
has put into its proposals on energy which says that companies
from other countries would not be allowed to own distribution
networks in Europe unless the country concerned from where the
company comes provides reciprocal access. Of course Russia does
not allow European companies to own distribution networks in Russia.
That is a second problem for Gazprom but they will have to accept
our rules as they evolve. The so-called reciprocity clause is
not that controversial; it will probably pass. The more controversial
is the unbundling which I think will half-pass with some fudges
and qualifications. To answer your question, I defer to experts
but my understanding is that long-term contracts in themselves
need not be incompatible with a liberalised energy market.
Q151 Lord Lea of Crondall:
Can I ask our visitors have they got our list of questions? Okay,
could I ask question two then please.
Sir Roderic Lyne: This is how is the EU perceived
from a Russian perspective and what are the underlying principles
of Russian foreign policy towards the EU?
Chairman: I think it would be better
if you did ask the question, Lord Lea.
Q152 Lord Lea of Crondall:
Because we are all over the place, it is not quite clear whether
our visitors really understand our agenda of questions; that is
why I am asking. Question two reads as follows: is the current
institutional framework for EU-Russia relations, based on the
Partnership and Co-operation Agreement (PCA), the four common
spaces and the "Northern Dimension" working well? What
approach should the EU adopt towards the negotiation of a new
agreement?
Sir Roderic Lyne: I think the EU should not
attempt to negotiate a grand, overarching new agreement on the
lines of the PCA because the PCA was posited on the idea that
Russia was moving towards a situation in which we could say that
we had common interests and shared values; and that simply is
not the case at the moment. I think that the four common spaces
agreement, the roadmap for the common spaces, contains a lot of
good stuff, but I am not sure how much of it is being implemented.
For example, the treatment of the British Council, which we were
discussing earlier, runs directly contrary to some of the provisions
in the relevant common space. I do not think we are going to move
forward with the Russians through these very large agreements.
I think a much more productive approach at this present stage
is for us to negotiate on individual, separate issues with the
Russians, some of which will lead to agreements perhaps in the
area of energy as we were discussing, and some of which may lead
to an agreement with them if we have a shared interest somewhere
and should so proceed. It is right and useful that the European
Union should have formal procedures for meeting the Russians at
summit and other levels. I think that this dialogue is important
and necessary. However, I do not think that we should have agreements
which simply are unrealistic and do not reflect the actual state
of affairs.
Lord Lea of Crondall: In that case, is
all of this a bit of a waste of time? It is obvious that the Russians
like to talk to big fish, and Merkel happens to be the President
of the Council of Ministers at the time or whatever, that is fine—but
I would just like to check in the light of your answer—I
do not know whether Mr Grant agrees with your line of answer—what
special relationship is there? I am just not clear where we are
going
Q153 Chairman:
Mr Grant, perhaps you could answer the question and particularly
comment on Sir Roderick's comments that he feels in the present
circumstances an attempt to negotiate a new PCA is probably a
mistake.
Mr Grant: I am fairly agnostic on this. I guess
I probably think like the EU officials on this, which is that
if we could use the PCA to try and get Russia to sign up to the
principles of the European Energy Charter, which would basically
force the Russians to open up their energy markets a bit and allow
foreign companies to do more in Russia in the energy sector, then
that would be a good thing about the PCA, but the Russians have
indicated that they are not prepared to do that. Maybe Roderic
is right that there is not much point in going through all the
fandango of these complicated negotiations if we do not think
we are going to get much out of it. On the other hand, I am not
sure I totally support the Polish Government's attitude to this
in the way they vetoed the start of the talks. My understanding
is that they probably bear some of the blame. Meetings were arranged
to try and sort out the problem of Polish meat exports and the
Poles simply did not turn up to the meetings, so there was an
effort in the summer to resolve this, I think the Russians made
some effort to resolve it. Because the Poles have vetoed the start
of the talks, it allows the Russians to make fun of the EU and
say, "Isn't the EU ridiculous. It can't even agree to start
talks with us." There might be an argument that having a
process of negotiation with the Russians in itself is of some
use just to keep the two sides engaged but I do not have strong
views and I would not want to differ much from what Rod Lyne said
on that.
Sir Roderic Lyne: Could I add two points. There
is one quite good example of EU negotiation with Russia leading
to specific results and that was when Russia was persuaded eventually
to accede to the Kyoto agreement. I think looking ahead what is
very important is the timing of Russian accession to the World
Trade Organisation. Every year we are told that it is going to
be next year that it happens. It is not now going to happen this
year and so it is not quite clear when that is going to happen.
If and when it happens it will open the way for the European Union
to negotiate a free trade agreement with Russia, which I think
would be enormously to the advantage of both sides, certainly
to the European Union. I would much rather focus on that than
a wider agreement full of flowery phrases that are simply not
credible to our own public opinion or indeed to people in Russia.
Q154 Lord Lea of Crondall:
Would you therefore agree that in this area of institutional framework,
what we are groping for is not so much an institutional framework
for the sake of having an institutional framework; it is trying
to be a bit clearer about how the big issue, landscape, the canvas
on which the picture is painted is organised? You have just mentioned
Kyoto and I think that is hugely important. The Russians and Putin
played their cards, would you agree, or their chess game very,
very skilfully. The development of the EU Emissions Trading Scheme
could be of great interest. This is one issue separate, and then
another issue separate and another issue separate. Could you talk
about how the key issues should relate to any framework or special
relationship, or does that not matter and should we just deal
with blocks of important issues?
Sir Roderic Lyne: I think it does matter partly
because the Russians like to have a framework. This is a procedure
that they understand and if you have a set of meetings between
the Russian Government and the European Union that cover different
areas of our relationship, it allows a framework through which
you can then deal with specific problems. If I could mention another
example—there was a successful negotiation over the question
of transit to Kaliningrad after the entry of Lithuania into the
European Union. At the beginning of that process there was a lot
of heat and light. Some very serious detailed work was done in
negotiation using that framework and a successful conclusion was
agreed, so it can work and I think it is necessary.
Chairman: Lord Swinfen, we have
already taken some of the energy points but I wonder if you would
like to continue.
Q155 Lord Swinfen:
To what extent do you think Russia is prepared to use its energy
exports as a political weapon or do you think it is primarily
interested in the economic aspects of energy export?
Sir Roderic Lyne: It needs the economic benefits.
60% cent of Russia's export revenues come from the export of oil
and gas, around 80% from the export of raw materials overall.
It is desperately dependent on this. A lot of the Russian budget
is funded from the export of oil and gas. I think they quite clearly
see this as an instrument of global power. Before Putin even became
President he was saying to the Russian people loud and clear that
we will not become a great power again through military means;
we need to get the economy working; we will do this. There is
of course the famous thesis that was written over Putin's signature
in the late 1990s that again put forward this argument. I think
we have now seen enough evidence of Russia using energy as a political
instrument, and it is not the only country on earth that does
this, by any means. It is indisputable that this is how they see
it. I think they have both motivations and I suspect that if we
were sitting in the Kremlin we would probably seek to do the same.
Q156 Lord Crickhowell:
We have already talked about the weakness of their position in
a sense. There is growing supply shortage, inadequate infrastructure,
Gazprom is one of the world's most inefficient organisations and
has diversified itself in 100 different ways into non-energy fields.
The gas is being sold in large quantities at uneconomic prices
and is very inefficiently used in Russia. If they are going to
try and use it as an instrument in these situations, does it not
at least give Europe particularly a very strong position indeed
in standing up to its use as an adverse instrument against Europe?
Europe's negotiating position, I think it has been indicated in
some earlier remarks, is going to be quite strong if we use it
sensibly. It is an economic instrument which has great weaknesses,
has it not?
Mr Grant: Obviously there is mutual dependency.
As Rod said, the pipelines all go west at the moment, so that
does give us leverage, which is why I actually think that we will
probably negotiate and find compromises on some of these questions.
I think the Russians have one precise objective which is to control
the energy infrastructure in the former Soviet Union, and sometimes
they say this explicitly. Of course if you look at what they are
doing in their disputes with Belarus and the Ukraine on energy,
they want control of the pipeline networks in those countries.
I think it is the same in Moldova. They want to recreate this
single system for energy supplies. I think they would be quite
happy if it went beyond the former Soviet Union into parts of
Europe too. They have of course bought supply depots and they
have got stakes in various distribution networks in Europe. They
do not have a majority stake yet in any single major distribution
network that I am aware of but they have certainly bought bits
and piece of energy infrastructure in Central Europe and a little
bit in Western Europe. I think this is a monopolistic objective.
I have heard Putin say that, "You in the West have your cards,
you have your high technology, you have your aerospace industry;
we do not have that, we have only have one card we can play, which
is our energy system, and do not think we are going to let you
into it." He did not use the phrase "crown jewels"
but he was saying "This is Russia's crown jewels and we would
be crazy to let you in." From a Russian nationalist point
of view I think he is right.
Sir Roderic Lyne: The weakness of their position,
as you rightly say, is in their poor production and mismanagement
of the resource, but the strength of their position is in their
ownership of enormous reserves. There are only three areas of
the world—West Africa, the Middle East and Russia—which
have got that sort of potential and every energy company in the
world would like to have access to those reserves, including the
ones in the Arctic.
Q157 Lord Hannay of Chiswick:
I take those points but would you not agree that it must be in
our long-term interest to wean the Russians away from this totally
mercantilist approach to energy policy? It may not be easy to
do so but it would be a pity to give up on it. I detect in both
your replies a fatalism about the Russian attitude to their energy
situation. It is not actually the case that if we were sitting
in the Kremlin we would do the same. The British Government did
have to take decisions in the 1970s about whether or not to interfere
with the direction of North Sea oil exports and it decided deliberately
that it would not interfere because it was not in our national
or economic interests to do so. So I do not think we would come
to the same conclusion. I do not think we want the Russians to
continue to come to the same conclusion. I would like you to say
whether you think we should just simply throw in the towel, as
it were, on things like the Energy Charter and that sort the thing
or whether we should politely but persistently continue to say
we think it is in your interests as well as ours that we should
have a more private sector-oriented, liberalised energy sector.
Mr Grant: In the long term I am more optimistic.
For the reasons that have been mentioned, they will have a real
problem exploiting new resources. They do not have the technology
or the expertise and we have the technology and the expertise,
so if they are serious about exploiting things offshore particularly—they
have no offshore expertise—in some of the very cold areas
I am told by energy experts they will need Shell and BP and the
American companies too. Again Rod knows much more about it than
I do, but I know that they certainly have not wanted to kick Shell
out of Sakhalin because Sakhalin is about offshore rigs and they
cannot do offshore rigs; they need Shell. Therefore I am optimistic
that they will see that it is in their interests to allow Western
companies to operate in Russia and I think the quid pro quo will
be some liberalisation of the market, but I do not think it is
going to happen yet because they are rather short term in their
view.
Sir Roderic Lyne: Gazprom has never operated
offshore and Gazprom has never built LNG so they need that consortium
to build the LNG plant. I do not think we would have invented
Gazprom but I think we, like them, would have surveyed what assets
we had and would have said energy is the only one that seems to
give us leverage in the international political arena. I am not
pessimistic for the long term, rather like Charles, but I do not
think the Russians will change their policies because we tell
them to do so. I think that life itself, as they would say, will
cause them to change their policies. Five years ago, before the
flood of oil money hit Russia, there were very serious plans being
made for the reform and restructuring of Gazprom to break it up
and turn it into a commercially effective company. They were shelved
in early 2003 for political reasons. Extremely intelligent people
within the Russian system realise full well that this is a very,
very inefficient model. I think when life becomes more difficult
again in the future, as it will do at some stage, they will return
to this issue, just as they have recently broken up the electricity
generating company because the electricity generating industry
in Russia needs massive investment and they simply were not going
to get this in a single unified company, so it is being sold off
in blocks, part of it on the London Stock Exchange. It will change
when the need arises. At the moment the need for restructuring
and reform is covered over in thick layers of dollar bills and
those layers will thin out, I think, in the next five years.
Q158 Lord Anderson of Swansea:
I do not think anyone disputes that Western companies will continue
to operate in Russia. The question is the nature of that operation
and the nature of control. Is it likely that they will see the
involvement of Western companies as contractors, as technical
advisers, but the control so far as we can plan will still be
under the Russian monopolies?
Sir Roderic Lyne: They would be far from the
first country to do that. I think that Western independent oil
companies are prepared to accept working with different models
and they accept that sovereign governments have the right, whether
it is Saudi Arabia or Russia, Nigeria, or indeed the North Sea,
to decide on their own regimes. It is not only that they need
the technical input of Western countries, they also need the investment.
Developing the Yamal Peninsular, which is the next big gas province
in Russia, is going to cost in the order of $100 billion, possibly
more, which is beyond the resources even of Gazprom. If you start
talking about the Arctic and the Stokmann field you are talking
about even more astronomical sums. Certainly they will want Western
companies—and not just suppliers and contractors—to
play a role as partners but they do not want them owning the resource
in very large quantities and they do not want them in the driving
seat as far as decisions are made. The most successful partnership
up to now has been the TNK-BP partnership. That was deliberately
constructed—and I declare here that I am adviser to BP but
I do not speak for the company or take decisions in the company—on
a 50/50 basis. If BP had gone for 51/49 in BP's favour it would
not have happened or, if it had happened, it would have been reversed,
so I think there are a number of workable models. I am struck
by the fact that the Russian Government has recently reinvited
foreign companies into the Stokmann project, starting with Total
and I think others Chevron, Statoil, Norsk Hydro are quite likely
to come into that because I do not think it can be achieved without
them.
Q159 Lord Hannay of Chiswick:
Switching from energy and all these other areas, although they
have foreign aspects to them, to looking at Russian foreign policy,
is there any discernable pattern to this policy beyond a heavy-ish
dose of post-imperial nostalgia? How do they rank the importance
of their big partners—United States, Europe, India and China—and
how seriously can we take their claim that they are in favour
of multi-lateralism when they seem to use their position in most
multi-lateral institutions simply to block Western or American
policies even when there is not a very obvious Russian national
interest at stake Kosovo being a case in point where it really
is quite difficult to see what the Russian national interest in
that is, except for mucking everyone else about and showing them
that they are still there? Could you characterise a little bit
Russian foreign policy and its likely development?
Sir Roderic Lyne: I think Russia is in favour
of multilateralism in the same way that the United States is.
That is to say where it is to Russia's advantage to use it, it
will do so, and otherwise it will not. Russia's case being much
weaker than the United States, the advantage lies more often in
using multilateralism and using Russia's position on the UN Security
Council. I was struck when I served in Geneva by how weak Russia
was in Geneva because the Security Council did not matter there.
What did matter was your economic weight and at time I was there
in the late 1970s Russia was not a significant donor to the UN
and other bodies in Geneva and actually was more or less ignored
by everybody. I think the most important focus of Russian foreign
policy is on what they call the "near abroad" or what
we might call the "common neighbours". That is where
the greatest effort goes, that is where the greatest concern is.
That is also where there are divisions within Russia about whether
or not they are pursuing the right policy within the Russian elite.
The objective is fairly clear, it is to every extent possible
exercise influence over the former Republics of the Soviet Union
and the areas on Russia's borders. With regard to the United States,
Russia has relatively little trade with the United States and
does not have a very wide agenda with the United States. It is
predominantly focused on arms control and nuclear issues, but
of course there is a great desire on the part of the Russians
still to be seen to be taken seriously by the United States. I
felt that President Bush was right to extend an invitation to
President Putin, rather controversially, to go to Kennebunkport
this year to discuss the issue of theatre missile defence, and
although at the moment, judging from the visit of Condoleezza
Rice and Bob Gates to Moscow the week before last, those discussions
are not going particularly well, I am told that behind the scenes
they have not actually hit the buffers either and that there is
something of a serious negotiation going on between the United
States and Russia about INF, missile defence and CFE. I hope that
is true and I think that is correct. I think that is the main
Russian agenda towards the United States. I think China is a very
interesting case because the official line in both Peking and
Moscow is that the relationship between Russia and China has never
been better, not in 300 years. The leaders meet up to five times
a year; the contentious issues on the border have been resolved;
trade is in the order of $40 billion a year and rising; China
is the biggest market for Russia's arms exports; they have the
Shanghai Co-operation Organisation; they have had one or two joint
military exercises, and everything is hunky-dory. If you actually
ask a Russian strategic thinker—there are a few such—what
their biggest concerns are as they look ahead at Russia's future,
you get the one-word answer "China", and I have even
had that from a very senior general in Russia. The Russians are
enormously concerned about how over the next 20 or 30 years they
can accommodate the rise of China not only as an economic power
but as a military power, a military power that they themselves
are helping to develop. I think the Chinese view of Russia is
one that is less than flattering. I do not think they are terribly
impressed by the effectiveness of the Russians and I think you
have got a fair degree of tension under the surface in that relationship
that will limit the extent to which Russia and China (which make
common cause on quite a lot of international questions at the
moment, particularly at the Security Council) will really work
closely together in the world of the future. I am not one of those
who takes an alarmist view of these two large emerging authoritarian
countries teaming up together against the rest of us because I
really do feel very strongly that Russia has a huge concern about
China. It has drafted legislation designed principally to prevent
the Chinese from buying too much into the up-stream resources
in Siberia, just to take one example. You have a 3,400 kilometre
stretch of the Amur River, which is the common border, without
a single bridge across it. There are many other factors that one
could throw into the mix. Is there a coherence to Russian foreign
policy? No, I think it is essentially short term and opportunistic.
Russia is a country that is led by people who were born and brought
up and formed in the Soviet Union, and that will be the case for
another 10 or 15 years, people who instinctively think in Great
Power terms and wish Russia to be a great power, and wish Russia
to be taken seriously. Now that Russia has got its economy and
its internal affairs onto a slightly firmer footing than it was
10 years ago, the Russians want to assert their right to an independent
foreign policy and to show that they can be a factor, not all
the way round the globe—essentially they are more or less
nothing in Africa and hardly active in Latin America—but
in the Middle East for example to show that they do have a point
of view that is as legitimate as anybody else's. I do not think
it is specifically anti-Western; I think it is more trying to
say, "We are here, we have interests, and you need to take
account of us too".
1 Since this Evidence was heard, the Russian authorities
have demanded the closure of the British Council centres in St
Petersburg and Ekaterinburg, apparently as a further act of political
retaliation. Their reasons for doing so have been rejected by
the British Government. Back
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