Export Of Russian Capital

Mechel OJSC intends to acquire additional facilities in Brazil. Metallurgists state that Russia tariffs and distances make business unprofitable. The era of Russian cheap energy products is over and will never return, for production of hydrocarbons is becoming more and more sophisticated. Furthermore, domestic oil and gas companies are not anxious to invest funds in the fuel industry, choosing to develop fields in other countries. It means that in the foreseeable future Russians will lose both jobs and ability to buy energy. 

Mechel, a mining and steel company, specializing in coal, steel and power production, began to purchase foreign facilities several years ago. At present, in addition to Russian factories, it owns coal strip mines in the USA, ore operations in Kazakhstan, metallurgical production facilities in Romania and Lithuania. Experts assume that Mechel has influence on the owners of the Estar Group that owns the British MIRsteel plant. 

Late in August, mass media informed that Igor Zyuzin, owner of Mechel, intends to acquire three blast furnaces from Cosipar or to set up a joint venture with this company. The Russian metallurgical company is tempted by sizeable reserves of iron ore in Brazil and by the location of the factory that is close to the ocean, simplifying the delivery of coal from the USA and shipment of pig iron to Great Britain for processing.

The arrangement, though logical in business terms, calls in questions from experts. They believe that the intended production chain is aimed at loading MIRsteel, which has actually been idle for more than two years. Thereby, experts want to know whether it is proper to provide jobs to foreign workers, when modernization of metallurgical operations results in mass redundancy of employees in Russia. 

Russian business people do not have any other option but transfer their facilities closer to ports or acquire ready-to operate facilities in other countries. It is obvious that factories that were built in hinterland regions within the vast Russian territory during the Soviet period will be able to survive on the market only at very low tariffs for energy and cargo transportation. This is exactly what nobody can promise. 

Having privatized Soviet black gold, Yeltsin-time business entrepreneurs embarked on milking the industry. Without having exploration and drilling technologies that could be applied to shelf conditions, without state-of-the-art refineries, oil and gas company owners spent their huge profits on payment of dividends, lining their own pockets, rather than on know-how. Development of Eastern Siberia (and the Yamal peninsula) is impossible without cutting-edge technology and extremely costly control systems. This will require technological reforms in the entire industry and in research financing.

At the same time, Russia has not even considered the problem of liquefied gas transportation from Yamal, which requires special ice-class tankers. Things came to the point that today Russian oil-field experts are not able to perform properly fracturing operations, opting to invite professionals from the Schlumberger Company to do the job.

Experts believe that the only alternative to this process is nationalization of major properties, price control, free secondary and higher education, and task-specific public investment in innovative industries. Can these tasks be accomplished in today's situation? Most unlikely. The two-year-long talks of the Kremlin about industry modernization have shown that the economic and political system of the country is geared to primitive guzzling up of resources. Therefore, it may happen that Russia soon will have to import fossil fuels; however, there is the question that has been factored out - where will it take money from to purchase them.

By Vladimir Terletsky