Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
Jakub M. Godzimirski
Department for Russian and Eurasian Studies
Head of the Energy Programme
NUPI
Draft Paper, not for quotations
GOVERNING ENERGY IN EUROPE AND RUSSIA
3 – 4 September 2010
Radcliffe House, University of Warwick
Understanding strategic decision making in Russian energy sector
The aim of this paper is to shed light on the process of strategic decision making in Russian
energy sector. As energy cooperation is an important element of Russia’s relations with the
EU, understanding how decisions are made in this sector of Russian economy is of greatest
importance to all those who are to shape this cooperation in years to come.
The paper will focus on two key issues. In the first part I will discuss methodological and
source-related problems that have to be coped with when trying to understand the process of
decision making in Russia in general and in energy sector in particular.
In the second and main part of the study I will try to provide answers to the following set of
key questions:

What are the strategic decisions taken in the Russian energy sector?

Why it is important to study decision making in Russian energy sector?

Who are the key actors and stakeholders shaping Russian energy policy?

How are strategic decisions made in Russian energy sector?

What is the role of external and structural factors in Russian strategic decision making
in energy sector?
Strategic decision making in Russia: specific features
Any study of decision making process in any context should start with identifying key actors
and stakeholders, their motivations and interests, ideas that guide them when they take their
decisions and not least mapping of institutional environment they operate in. In addition one
should make an attempt at understanding how specific local features, such as political and
organisational culture and social codes may impact on decision making process.
When analysing decision making process in Russia one faces a number of challenges. The
first one is the question of actors and stakeholders who have a say and stakes in the decision
making process. There are various types of actors to be found in Russia and elsewhere –
individual ones, corporate ones, institutional ones or those who could be rightly described as
‘composite’ ones, such as interest groups made up of various types of actors pursuing their
individual or group interests in a more or less coordinated manner. In addition one has to be
aware of the fact that those actors may operate at different levels – at the local level, at the
regional level, at the subnational level, at the national level and finally at the supranational
level.
In the case of Russia all those levels seem to be important, and even more so when we want to
understand decision making process in Russian energy sector that has strong regional,
national and international cut. For instance, the fact that the two most important energy
producing regions are located in Western Siberia gives this part of Russia a special place on
Russian, European and global energy, economic and even geoplitical maps. The fact that
1
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
national authorities define Russian energy sector as the most important strategic economic
asset attracts attention of actors located at the national level and one can therfeore expect that
many of the strategic decisions on the future development of that sector are taken at the top of
Russia’s national power pyramide. Given the harsh climatic conditions of Russia, Russian
energy resources are also believed to be important for securing physical survival of the
Russian state andf its population.1 As Russia exports approximately one third of oil and gas
produced in the country and the EU is Russia’s main energy customer, Russian decision
makers who are responsible for shaping Russia’s energy strategy have also to relate to those
supranational actors, such as the European Commission or European regulators of the
European energy market.
What is another specific Russian feature is the relative importance of individual actors
operating in both political and economic context and relative weakness of Russian
institutions. This means that in order to understand who really calls the shots in Russia one
has to look for strong personalities and see how they influence decision making processes in
the country. This focus on personalities and not on institutions is especially important in a
situation when political power in the country has become centralized by the creation of the so
called power vertical and power of many other actors, such as regional leaders or economic
tycoons has been effectively curbed.
To understand how those individual actors act and why do they take this or that decision one
has also to pay some attention to what are the ideas that inform their decisions. This
ideological dimension is also important when trying to understand workings of the Russian
energy sector that is defined as strategically important by the ruling political elite. Two of the
three key energy actors playing, according to most Russian and Western experts, a major part
in shaping Russia’s energy sector – the former president and now prime minister Vladimir
Putin and deputy prime minister responsible for energy sector Igor Sechin – have published
dissertations on the problems highly relevant for the development of Russia’s energy sector.
Putin’s dissertation from 1997 focused on the role of mineral natural resources in the strategy
for development of the Russian economy,2 while Sechin’s one on the economic aspects of
transit of Russian oil and petroleum products based on the study of the pipeline going from
Kirishi to Batereinaya.3 The fact that they decided to focus on the problems of Russian energy
sector even before becoming heavyweight players at the central stage shows that their interest
in the problems of that sector is deeply rooted and that they approach those problems in a
serious manner. As that they both have played a key role in the process of the Russian state
regaining control over strategic energy assets they also proved able to translate those ideas
into political action.
Although identifying key actors in Russian energy sector may pose challenge, understanding
how decisions are actually made in Russia may prove almost impossible, unless one has first
hand knowledge of that process or has reliable source of information placed close to the
political centre of power in Russia. Otherwise we are doomed to rely on Russian media that
1
For more on that see for instance Parshev, Andrey P. (1999) Pochemu Rossiya ne Amerika: kniga dlya tekh, kto
ostayetsya zdes’. Moscow: Krymskiy Most-9D. Also Fiona Hill and Clifford Gaddis (2003) The Siberian Curse
Washington D.C: The Brookings Institution raise this question.
2
For more on that see Balzer, Harley (2005) The Putin Thesis and Russian Energy Policy. Post-Soviet Affairs
21(3), pp.210-225 and Balzer, Harley (2006) Vladimir Putin’s Academic Writings and Russian Natural
Resource Policy. Problems of Post-Communism 55(1), pp. 48-54.
3
The full title of Sechin’s 1998 dissertation was: Ekonomicheskaya otsenka investitsionnykh proektov tranzita
nefti i nefteproduktov: na primere nefteproduktoprovoda Kirishi – Batarejnaya (Economic assessment of
investment projects in transit of oil and petroleum products: the case of petroleum products pipeline Kirishi –
Baterejnaya).
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Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
are not always reliable and try to understand the process by looking at how it is mediated by
main Russian media outlets. However, if we decide to proceed in that manner we will end up
not with an analysis of decision making process as such, but rather with a study of the media
coverage of that process. There are, however, ways to cope with that challenge, and I will
return to that issue in the next part.
When analysing decision making in Russia one has to take into consideration specific Russian
features. Especially the relationship between formal and informal ways of addressing various
issues in Russia is a key element to be taken into consideration as its seems that in Russian
context informal links are far more important than formal and institutionalized ones.
When analysing decision making process in Russian energy sector in 2010 one needs also to
place this issue in a proper historical and political context. Putin’s and Medvedev’s Russia is
something different than Yeltsin’s Russia. During Putin’s two terms as president Russia has
definitely changed. Putin managed to set up his own power vertical, to curb power of
potential alternative centres of power, such as economic tycoons and regional leaders, and
change the rules of the game, also in the country’s energy sector. Russian state – and Russia’s
political elite – has regained power and this has also had huge consequences for how and by
whom strategic decisions are made.
Part 2. Strategic decision making in Russian energy sector
In the second part of that study I will focus on finding answers to the set of basic questions
concerning strategic decision making in Russian energy sector. I will start by defining what I
mean by ‘strategic decisions in Russian energy sector’. Then I will continue by looking at
why it is important to study strategic decision making in Russian energy sector and presenting
the geographical and temporal scope of that study. In the next step I will address the Who?
question by identifying the key actors and stakeholders in Russian energy sector, and finally I
will try to find an answer to maybe the most intriguing of all questions, namely How?
strategic decisions are made and implemented. In the last part of the study I will focus on the
strategic dimension of the last phase of realisation of one of Russia’s strategic energy projects
– the very hotly debated Nord Stream pipeline that is to link Russia with Germany and other
energy customers in Europe.
What?
As the goal of that study is to give a better understanding of the strategic decision making in
Russian energy sector it is natural to start by defining what is to be understood as ‘strategic
decisions’ in that specific context. The definition I propose is of operational, ideational
character and I don’t have any ambition to treat it as something unquestionable. By strategic
decisions I understand here decisions that change or affect key factors and/or parameters
influencing activity in Russian energy sector. Those decisions affect the environment in
which Russian energy sector operates and may have far reaching, long-term consequences for
its development. These decisions are taken by those who have a decisive say and sufficient
power to make others follow the orders and implement them. As Papadakis and Barwise
claimed strategic decisions are important for many reasons: they are usually big, risky and
hard to reverse, have significant long-term effects, are the bridge between deliberate and
emerging strategies, can be a major source of organizational learning, improve the quality of
management and cut across functions and disciplines.4
Strategic decisions affecting Russian energy sector can be of political, legal, economic, fiscal,
technological, infrastructural or mixed character. Maybe the most important strategic decision
4
Papadakis, Vassilis and Patrick Barwise (1998) Strategic Decisions: An Introduction, in Vassilis Papadakis and
Patrick Barwise (eds) Strategic Decisions, Dordrecht: Kluwer Academic Publishers, pp.1-17.
3
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
affecting the whole energy sector – and Russian economy in general – was the decision on
privatization of the Russian economy taken by young Russian liberals in early 1990s. This
decision put an end to the state monopoly, changed the whole economic game and resulted in
emergence of a new type of actors who have since been putting their mark on the
development of Russian economy. As a result the Russian state did lose its control over both
oil and gas sector. This drive towards privatisation continued even during Putin’s period when
the state power monopoly RAO UES led for many years by the father of Russian privatisation
programme Anatoly Chubais was finally privatised in 2008.
The state’s control over the gas sector was restored in 2000 when the state regained de facto
control over Gazprom, but in the oil sector the state still controls slightly less than 40% of
production. A good example of strategic decision of political character disguised as a purely
legal action was the 2003 decision on dismantling of Yukos. This decision resulted in a de
facto re-nationalization of the part of Russian oil sector and transformed Rosneft into one of
the key energy players. Another decision of both political and economic character was the one
on preferential gas prices for Ukraine taken by president Medvedev in April 2010. Also the
fact that the Russian authorities decided that Russian gas customers will in the longer run
have to pay prices that will be comparable with those paid by external consumers can be seen
as a political and economic decision of strategic character.
A good example of how legal decisions may change the game in Russian energy sector is the
adoption of the Law on Subsoils and the way strategic fields are defined. Both those decisions
limit the foreign companies’ access to most interesting energy assets. Also decision on
making the existing PSA contracts null and void, like in the case of Sakhalin II, was of
strategic character as it made potential investors more aware of the investment risks.
Another decision of strategic character affecting the whole Russian energy sector is the
decision on new investment programme in Russian nuclear energy generation capacity. Also
the increased political focus on energy savings and improvement of energy efficiency of
Russian economy can be interpreted as being of strategic character.
Russian decision makers have also taken a number of strategic decisions on realisation of new
energy projects. The decision to build an alternative pipeline network, the BPS, that was to
make Russia less dependent – or as it turned out almost completely independent – on Baltic
ports that had been used to export Russian oil was definitely a decision of strategic political
and economic character. Also decisions on construction of new gas pipelines circumventing
transit countries, such as Nord Stream and South Stream were of strategic, political, economic
and technological character. The renewed focus on construction of Altai Pipeline that is to
supply China with Russian gas is another example of strategic decision making, as it may help
Russia diversify its gas supplies and make it less dependent on the European gas market.
Also Russian decision to develop off shore gas and oil fields and invest substantial amounts
of money into development of gas fields at the Yamal Peninsula can be treated as important
strategic decisions that are to improve Russia’s position as a energy player in both European
and global context.
Russian policy makers have also decided to increase fiscal burden for Russian energy
producers by reintroducing in 1999 of export duties and linking the level of taxation to global
energy prices and securing in that way additional revenues for the state budget. Also
introduction of the severance tax known in Russia as Mineral Extraction Tax (NDPI) in 2002
that replaced an earlier more complex tax system was to provide the state with additional
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Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
mining rent.5 This focus on fiscal aspects of energy policy resulted also in Alexander
Kudrin’s budget proposal made in 2006 where he proposed creation of the Russian
Stabilization Fund that helped Russia cope with the recent crisis and made the Russian state
budget less dependent on oil and gas revenues.6
Although Russian energy sector seems to be today firmly controlled – directly or indirectly –
by the Russian state, its future development is affected not only by Russian decision makers.
As stated above, the situation in the Russian energy sector is also to a very high degree
influenced by strategic decisions taken by Russia’s energy customers and its energy
competitors. For instance, Russia’s energy cooperation with its key energy partner, the EU, is
being affected by strategic decisions taken by European policy and decision makers, both at
the national and supranational level.
Since EU is the most important energy customer of Russia, Russian decision makers cannot
afford ignoring developments in the EU and impact EU’s strategic decisions may have on the
Russian strategic room for manoeuvre in the field of energy. According to newest published
data the share of energy in Russian exports to the Europen Union has reached very high level
in 2009. The whole Russian export to the EU in that year was 160.7 billion USD, and mineral
fuels, oil and oil products represented 83.7% of that sum.7
According to a recently published study on key decisions to be taken in the European energy
sector its future will be decided by choices made in several areas, such as the ‘markettechnology-regulation nexus’ versus energy nationalism and geopolitical competition, climate
change versus energy security, competitiveness or development of nuclear energy and clean
coal technology.8 In the opinion of same authors in order to strengthen Europe’s energy
position, the EU should agree on some basic principles to build common energy policy,
improve interconnectivity of European energy grids, and finally it should devote funds to
R&D projects associated with clean energies, especially electric cars, renewable energies, and
technology to capture and storage carbon. If implemented, this ambitious programme will
affect not only European energy customers, but also situation in the energy sector of the main
external supplier of energy to Europe, Russia.9
Another good example of how strategic energy decisions taken beyond Russia’s borders are
affecting Russian energy sector is the impact strategic decisions on development of the new
technology taken by a number of US and Canadian companies allowing commercial
exploitation of shale gas is having on the North American and global gas market. The falling
demand for LNG in the USA may delay or even undermine one of the key strategic Russian
energy projects – the development of the off-shore Shtokman gas field in the Barents Sea.
Those developments may also weaken Gazprom’s dominant position on the European gas
market, especially if it turns out that this technology could also be applicable in Europe eying
today hope for finding huge deposits of shale gas that could be exploited commercially. Such
efforts are being made amongst other in Poland, a country that has an important role as
5
For more on taxation reform see Goldsworthy, Brendon and Daria Zakharova (2010) Evaluation of the Oil
Fiscal Regime in Russia and Proposals for Reform, IMF Working Paper 10/33 at
http://www.imf.org/external/pubs/ft/wp/2010/wp1033.pdf
6
http://www.lenta.ru/lib/14161127/full.htm
7
http://www.economy.gov.ru/minec/press/official/doc20100617_011
8
Isbell, Paul and Federico Steinberg (2010) Key Strategic Decisions for Europe in Energy and Climate Change,
Real Instituto Elcano, Madrid , ARI 76.
9
For more on the impact of the external energy policy of the European Union on Russia see Götz, Roland (2008)
European Energy Foreign Policy and the Relationship with Russia, in Jacques Lesourne (ed.) The External
Energy Policy of the European Union, Gouvernance Europeenne et Geopolitique du Energie 3, Paris and
Brussels: IFRI.
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Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
atransit area of Russian gas and one of important medium size European markets for that
Russian commodity.
The success of the shale gas projects in the US and Canada and its possible effect on the
European gas market and position of Russian producers on it illustrates very well that there
are not only decisions taken by political leaders that count in that context. The development of
this new game changing technology was mostly done at the corporate level, showing that
strategic decisions taken by corporate actors beyond Russia’s borders also matter. In his
recently published study Christian Schülke shows how key European gas and electricity
actors have been adapting their policies and strategies to the new legal and institutional
framework that came about as a result of the process of liberalisation of the EU energy market
decided by European policy makers.10 The strategic decision on liberalisation of the European
gas and electricity market has had consequences not only for West European actors, some of
which, like E.ON, Gasunie or GDF Suez, cooperate closely with Gazprom, but has also
directly influenced strategic choices of Gazprom and other Russian energy actors, especially
those who are interested in midstream and downstream investments in European gas market
or in export of electricity to Europe.
As Russia’s energy cooperation with the EU is regulated by several not only political but also
legal agreements, the impact legal strategic decisions have had on that cooperation has also to
be taken into account. This issue has been recently addressed by S. Selivestrov who has gone
through the most important legal aspects influencing energy cooperation.11
Why?
There are several reasons why one should study decision making in Russian energy sector.
The first and foremost is the role this sector plays in Russian economy and national strategy,
in both domestic and international context.12 As stated in a recent IMF study oil and gas
receipts are an important source of export earnings and government revenue in Russia accounting
for two-thirds of all Russian exports by value, and generating a third of general government
revenue.13 Oil price at global markets is probably the most important economic indicator
Russian policy and decision makers have to look at when making any predictions on the
future of Russia, planning the country’s economic policy and designing long-term grand
strategy.14
Schülke, Christian (2010) The EU’s Major Electricity and Gas Utilities since Market Liberalization, Paris and
Bruxelles: IFRI.
11
Seliverstov, Sergey (2009) Energy Security of Russia and the EU: Some Legal Aspects, Paris and Brussels;
IFRI.
12
Perovic Jeronim (2009) Introduction: Russian energy power, domestic and international dimensions, In
Jeronim Perovic, Robert W. Orttung and Andreas Wenger (eds) Russian Energy Power and Foreign Relations,
London: Routledge, pp. 1-20 gives good understanding of relationship between Russia’s energy sector and
domestic and foreign policy. For an interesting recent study of Russian foreign energy policy see Shadrina, Elena
(2010) Russia’s foreign energy policy: norms, ideas and driving dynamics. Electronic Publications of PanEuropean Institute 18/2010 Tampere: Pan-European Institute. Also Liuhto, Kari (2009) Energy in Russia’s
foreign policy, Electronic Publications of Pan-European Institute 10/2010 Tampere: Pan-European Institute
addresses the same issue in an interesting manner.
13
Goldsworthy and Zakharova 2010.
14
See for instance slide nr 10 in Minister of Economic Developement Elivira Nabiullina’s presentation at the
joint meeting of the Ministry of Economic Development and Ministry of Finances held on 14 May 2010. The
presentation can be downloaded from http://www.economy.gov.ru/minec/press/news/doc20100514_03.
10
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Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
During the post-Soviet period Russian energy resources have proven to be both Russia’s main
strategic asset and Russia’s main curse.15 The revenues generated by the Russian energy
sector, helped by the high prices of energy commodities on the global markets, have made it
possible for Putin to realize his plan for Russia, stabilize situation in the country and secure
relatively high and quick economic growth. It was mostly thanks to revenues from
exploitation and sales of oil and gas that Putin’s team could cope with the most serious
economic, social and political problems inherited from the previous period. Putin’s and
Medvedev’s high ratings have been to a very large degree, though not exclusively, a function
of the partly illusory feeling of stability and positive development shared by many Russians, a
feeling that the oil and gas money has paid for.
Figure 1. Main exports of Russia
At the same time, however, the relatively easy oil and gas money that has secured budgetary
surplus and filled many private pockets has been an important impediment in the process of
modernization and diversification of Russian economy. That fact that political power seems to
secure control of money flows in Russia was an important incentive for the ruling elite to stay
in power and halt political and economic reforms the country needed if it was to catch up with
the West and become more competitive in relations with other global centres of economic and
political power. The combination of different factors, such as the Russian political elite’s
longing for giving Russia back its great power status after years of humiliating defeats and
problems, the endemic problems typical of countries with huge natural resources, known in
the literature as ‘resource curse’, and Russian political and organisational culture that was
partly formed during the Soviet time and partly by the experience of what is often seen in
Russia as a rather failed transition towards democracy and the market economy, has hade
huge impact on the development of Russia’s energy sector. This is due not least to the fact
this sector is viewed as the main strategic asset by the political elite and as probably, if we
want to paraphrase Vladimir Putin, the juiciest morsel of Russia’s economy attracting
attention of all those who hope to have their own share of the huge resource rent generated by
that branch of the Russian economy.
Russia’s energy resources secure not only relative stability at the domestic front, but also give
Russia a political clout internationally. Only some years ago, before the economic crisis,
Russia liked to be described as an energy superpower and did not hesitate to use its energy
15
To learn more about that see an interesting analysis by Guriev, Sergei (2010) Ratio economica: Stsenarii 7080, Vedomosti, 19 January at www.vedomosti.ru/newspaper/article/2010/01/19/223144. See also Guriev, Sergei
and Andrei Fallaleyev (2010) Proklatyye syrem, Harvard Business Revue Rossiya, February Issue, pp. 42-49.
7
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
power to promote its interests and influence decisions of other actors. One can therefore
assume that Russian energy resources are treated as an important element in realisation of
Russian grand strategy under Putin and Medvedev.
The classical definition of grand strategy focuses on military aspects and state security. 16 In
his study on sources of strategic thinking Posen defines grand strategy as a political-military
ends-means chain, a state’s theory about how it can best ‘cause’ security’ for itself.17
In his recent study of threat assessment Lobell presents a much broader understanding of
grand strategy, saying that grand strategy is not only military, but also fiscal and political in
nature, that it does not cease at the end of war or starts at the beginning of war but is about
balancing ends and means in both peacetime and wartime, involving long-term planning over
decades and perhaps longer.18
Peter Feaver, who has both academic and practitioner background as the current director of
the Duke University Program in American Grand Strategy with many past assignments in the
National Security Council defines grand strategy as a ‘the collection of plans and policies that
comprise the state’s deliberate effort to harness political, military, diplomatic, and economic
tools together to advance that state’s national interest’.19
Grand strategy could therefore be seen as the way states make use of all major instruments of
national policy of importance for achievement of goals that are defined as strategic ones by
the country’s ruling power elite. Or it could be described, as John Lewis Gaddis did in his
speech on grand strategy as the art of relating all of the means at your disposal to the ends you
have in view.20
In the case of Russia under Putin and Medvedev the country’s energy resources have been
definitely defined as an important economic and political means the Russian state could use to
achieve its strategic goals. While the country’s nuclear weapons secured Russian military
security, Russia’s energy commodities have been more or less effectively used in the ongoing
international game of interests. What makes the study of strategic decision making in Russian
energy sector extremely interesting is that the use of energy resources in realisation of the
country’s grand strategy is read in completely different manner in the West and in Russia
itself.
According to the Western reading of the situation what we have seen over the last decade was
the adoption of a more comprehensive strategic approach to the energy sector in Russia, the
consolidation of the state’s role that was achieved amongst other by a clearly visible
strengthening of the link between the country’s political and economic elite, illustrated by the
fact that close Putin’s aides were placed in key positions in Russian energy sector, the
retaining by the Russian state of almost total control of the pipeline system (Transneft) and of
gas export routes (de facto Gazprom’s monopoly on gas export), a very clear strategy of
transit avoidance that is to make Russia less dependent on third countries, and control of
possible transit routes of other actual or potential suppliers of energy commodities to the
attractive European energy market (blocking of the Central Asian producers’ access to that
For good introduction on that issue see Kennedy, Paul (1991) “Grand Strategy in War and Peace: Toward a
Broader Definition,” in Paul Kennedy (ed.) Grand Strategies in War and Peace, ed. Paul Kennedy New Haven:
Yale University Press, pp. 2-3.
17
Posen, Barry R. (1984) The Sources of Military Doctrine: France, Britain, and Germany Between the World
Wars., Ithaca, NY: Cornell University Press, p.13.
18
Lobell, Steven E. (2009) Threat assessment, the state and foreign policy: a neoclassical realist model, in
Jeffrey W. Taliaferro, Steven E. Lobell and Norrin M. Ripsman (eds) Neoclassical Realism, the State, and
Foreign Policy, Cambrodge: Cambridge University Press, p.61.
19
http://shadow.foreignpolicy.com/posts/2009/04/08/what_is_grand_strategy_and_why_do_we_need_it
20
www.duke.edu/web/agsp/grandstrategypaper.pdf
16
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Understanding Russian Strategic
Decisions in Energy Sector
market), policy of preventing other actors’ access to markets in order to prevent them from
taking Russian market shares, the use of energy as a political tool, both in Ukraine and in
Belarus and elsewhere, many attempts at limiting the role of Western companies in the
Russian energy sector (with the exception of the deal on Yuznorusskoye gas field), growing
interest in downstream and midstream investments in Europe, and last, but not least attempts
at building formal (GECF) and informal coalitions with other energy producers in order to
strengthen their position in the international energy game (for instance Russian focus on
energy cooperation with Venezuela, and more generally Russia’s informal cooperation with
OPEC).
However, this Western view on Russian energy strategy designs is not necessarily shared by
Russians themselves. In his recently published article Russian energy boss Igor Sechin
outlined the Russian reading of the situation.21 In his view Russian energy companies are
public and transparent and they act taking into consideration reputational risks and economic
consequences of their actions. He also said that although Russia is suspected of having
interest in monopolizing the supplies of hydrocarbons, retaining control of pipelines and
getting a direct access to consumers, the only interest Russia has in that sector is the creation
of a sustainable energy market. He rejected the accusations that Russia is responsible for high
gas prices the customers have to pay for energy commodities, and pointed out that prices they
have to pay are formed at several stages and are influenced by the policies of the transit
countries and taxation level in the final markets.
Sechin also underlined that Russia was committed to long-term gas contracts and saw a
growing understanding for that in Europe. He also refused to accept the Western claims that
Russia used its energy resources as a political tool to punish some transit or consumer
countries and repeated that Russia was the country that was the most interested in
uninterrupted supplies of its energy commodities. He said that Russia’s main interest was
good cooperation with all parties involved in energy trade based on mutual trust and
predictability. He, however, admitted the fact that gas trade in Europe has been politicized and
added that Russia understood attempts at diversification of gas supplies to Europe. He also
expressed some annoyance with the fact there were attempts at changing the current mutual
interdependence in energy relations between Russia and the EU into Russia’s one-sided
dependence on gas market in Europe.
In Sechin’s reading the global gas market is now in an unstable phase, with uncertainty
regarding demand for gas, development of LNG market, methan gas and price formation and
all those factors will also influence development of shale gas market in Europe.
Sechin summed up his article by saying that Russia’s main challenge today is modernization
of its economy which is in his view needed in order to make Russia competitive in the
broader globalization context. This Sechin’s focus on modernization as the main task may be
seen either as his own personal reading of the situation or – which is maybe even more
plausible – as him paying a lip service to his de iure commander in chief, Russia’s president
Dmitrii Medvedev, who is keen on using this m-word in his speeches.
When and who?
The temporal focus of that study is on the recent history, on the last decade and more
specifically on Putin’s and Medvedev’s period. In order to understand the internal balance of
power in Russia today and to see how this balance of power may influence various actors’
ability to put their mark on strategic decision making in Russian energy sector we have to
21
http://www.izvestia.ru/economic/article3143376/
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Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
look at the relationship between the two key Russian actors – president D. Medvedev and
former president and now prime minister V. Putin.
Medvedev is often presented as Putin’s Russia’s liberal face, but what is more important is
not Medvedev’s liberal rhetoric but his ability to act and to translate his apparently more
liberal ideas into political action, his ability to make Russia realize not only a relatively vague
‘Putin’s Plan’ but also a more comprehensive reform programme presented for instance in
The Strategy of Russia’s Development until 2020. When Medvedev was elected Russia’s third
president in 2008 he promised to focus on four I’s: institutions, innovation, infrastructure, and
investment. A successful implementation by Medvedev of this Four I’s programme would
also have huge and far reaching consequences for Russia’s energy sector.
Medvedev and those who are supposed to be his intellectual back up team have recently
presented more detailed views on the future shape of the Russian state. On 10 September
2010 Medvedev published his own liberal manifesto entitled Go Russia! The main idea
presented in that text was that Russia had been increasingly lagging behind developed
countries in science, technology and economy. The main hindrances to modernization as seen
by Medvedev are corruption, an economy based on exporting raw materials, and a mentality
shared by many Russians of being a dependant.
A more detailed liberal program was presented only few months later by the Institute for
Contemporary Development that is viewed as Medvedev’s think tank. In February 2010 the
institute’s team presented a lengthy report Russia in the 21st Century. Vision for the Future in
which calls were made for economic and political liberalization. Finally, in May 2010 the
Russian branch of the UNDP presented a detailed report Energy Sector and Sustainable
Development which was also partly prepared by experts cooperating with INSOR.
In the end of May also president Medvedev himself made an important statement on energy’s
role in Russian grand strategy.22 He aired several ideas on the importance of that sector,
coming with very critical statements. He said for instance the following:
Yes, we are definitely interested in sales of our energy resources and we are
not interested in very low oil price. But, honestly speaking, 140 dollars per
barrel is a catastrophe for Russia, a blow to all incentives for development.
In the same speech he warned that Russia may face a situation when its energy resources will
no longer be seen as needed by external actors, and asked a rhetoric question: And where will
we be with our oil and gas?
Judging by those critical statements one can say that Medvedev has realized that Russian
energy resources are not only a part of solution but also a part of the Russian problem. What
will be Medvedev’s role in the shaping of that sector, in making Russia more modern and
diversified and less dependent on oil and gas will to a very large extent depend on his ability
to not only share but also to implement those critical ideas. A decisive factor here is probably
his relationship with another key political player Vladimir Putin and his team.
There are today at least three visions of that relationship. The Putin-Medvedev team is the
first metaphor – the two leaders are equally important, they negotiate policy and have a
common grand strategic design for Russia that they aim at realising in a joint effort. The
Putin-Medvedev tandem is the second metaphor – according to this vision the two leaders
pedal on a tandem bike towards the same goal; they cooperate, they both make a joint effort
but it is only one who steers this relatively unstable vehicle. The key question here is who
holds the bike’s handlebar and decides its direction. The third metaphor is that of Medvedev
22
http://www.kremlin.ru/news/7885
10
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
being Putin’s obedient marionette and having no real power to translate his rhetoric liberal
statements into political action. According to this reading Medvedev is Putin’s elected puppet
president and his election was first and foremost possible due to his personal allegiance to his
political mentor and lack of personal political ambitions.
According to recent public opinion polls the majority of Russians believe that the second and
third vision are closer to the Russian political reality. When asked whether Medvedev pursues
his own policy or that of Putin and his circle 66 % opinioned that he pursues Putin’s policy
while only 22% saw Medvedev as pursuing his own line.23 This may also mean that
Medvedev will have problems with implementing policies that are not seen as beneficial by
the Putin’s team. One of the direct consequences may be that the Russian energy sector will
still be seen as strategically important, that the state – and the the current elite – will not
loosen its grip on it and will not allow greater foreign participation in it that could in the
longer run result in transfer of needed know how, its more efficient management, less
corruption and more transparency.24
Putin’s dominant position on the Russian political firmament may also mean that we will see
much of the same happening in Russian energy sector and that the same political figures as
we have seen over the last decade will leave their personal footprint on its workings.
This brings us to the next question – who are those figures that take key strategic decisions in
Russian energy sector. The list of most influential figures in Russia published monthly by the
Russian newspaper Nezavisimaya Gazeta contains 100 names of those who are believed to
have greatest say in shaping the country’s political and economic scene. When summing up
the results of the year 2009 Nezavisimaya Gazeta presented a list of the top 100 figures that
according to Russian experts had the greatest influence on developments in Russia during this
year. 25 Almost exactly one fourth of those whose names can be found on that list are in one or
another manner connected to Russian energy sector.
The top ten on that list were (1)Vladimir Putin; (2) Dmitrii Medvedev; (3) Alexei Kudrin; (4)
Vladislav Surkov; (5) Igor Sechin; (6) Patriarch of Moscow Kiril; (7) Sergei Sobyanin; (8)
Igor Shuvalov; (9) Sergei Naryshkin; (10) Aleksei Miller. All in all, the ranking was
dominated by the representatives of the federal administrative elite (63 in 2009 versus 59 in
2008), business elite (21 in 2009 versus 20 in 2008), party and spiritual leaders (9 versus 11 in
2008) and regional power figures (8 versus 10 in 2008). This composition of the group
illustrates the dominant position of political elite. What is, however, more interesting is the
fact that list can be also used to measure the influence of energy elite and what could be
termed intra-elite balance of power.
Already a first glance at the list reveals that the country’s energy sector is strongly
represented. 7 out of ten top politicians play key roles in the country’s energy sector. The
most obvious of those is Alexei Miller representing Gazprom, but also Vladimir Putin, former
president and now prime minister with personal interest in Russian energy sector, Dmitri
Medvedev, Russia’s incumbent president and former chairman of Gazprom’s Board of
Directors, Alexei Kudrin, Russia’s Finance Minister responsible for country’s fiscal policy,
Igor Sechin, deputy prime minister responsible amongst others for development of Russian
energy sector and having a key position in state owned Rosneft, Sergei Sobyanin, another
deputy prime minister and head of the governmental administration, with first hand
23
http://www.levada.ru/press/2010041302.html
To learn more about that sector’s place on Russian strategic economic map see Liuhto Kari (2007) A future
role of foreign firms in Russia’s strategic industries at http://www.eu-russiacentre.org/assets/files/Liuhto%20%20PEI%20(2)_1.pdf
25
http://www.ng.ru/ideas/2010-01-13/5_top100.html
24
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Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
knowledge of the Russian energy sector from his time in Khanty Mansiysk and Tyumen
where he had various key political positions, including being governor, Igor Shuvalov, first
deputy prime minister responsible for economic policy, all have a great influence on the
development of Russia’s energy sector. Also if we move further down on this list we will find
other figures with strong links to Russia’s energy sector.26
Having in mind how the Russian state is today organized no one should be surprised to see
the political figures dominating the scene also in the country’s energy sector. But as we have
seen above the Russian energy sector is affected by strategic decisions of not only Russian but
also of foreign political leaders. For instance, the Estonian and Polish opposition against the
construction of the Nord Stream pipeline has forced the owners of that project to modify its
route; Lukashenko’s unwillingness to accommodate Russian political and energy interests has
resulted in a deep energy related conflict between Russia and Belarus, a conflict that also had
a negative effect on Russia’s energy reputation.
The workings of that sector are also affected by decisions of various Russian state organs and
by decision of state organs in countries where Russian energy sector has its interests. The role
played in decision making processes by Russian state organs and bodies, such as the Federal
Tax Service, the Federal Customs Service, the Federal Antimonopoly Service,
Rosprirodonadzor to name only a few of Russian state organs cannot be underestimated. On
the other hand European regulators also set limits and agenda for Russian energy actors who
are present at the European energy markets.
There are many other actors whose strategic decisions also affect that sector. To start with
there are energy producers both in Russia and abroad whose strategic decisions have a direct
bearing on the situation of that sector of the Russian economy. Also behaviour and choices
made by energy consumers in Russia and abroad influence that sector deeply. The fall in gas
demand caused by the global economic crisis in 2008 and 2009 has sent shockwaves through
the whole energy sector in Russia, Gazprom had to reduce substantially its production and
investments, agree on partly lower prices for the main customers, such as E.ON and has still
problems with recovering.
If we look at the watershed events in Russian energy sector over the last decade we also
discover that strategic decisions taken by transit countries located between Russia and
markets have also had huge impact on Russian energy sector and its image as reliable longterm strategic partner. Russia’s gas wars with Ukraine and oil and gas wars with Belarus,
halting of oil export via Latvia, stop in oil supplies through the Druzhba pipeline to Lithuania
are all examples of the interaction between transit countries and Russian energy sector. The
wish to avoid transit dependence is also one of the key factors driving Russian energy
strategy.
The ability of the Russian energy sector to implement its own strategic decisions depends not
only on the will of its leaders but also very often on access to economic resources provided by
other actors, such as Russian and international investors, banks and other financial
institutions. Especially in the crisis and post-crisis period when the capitalisation of key
Russian energy companies was halved, price volatility made investments in energy sector
unpredictable and credits were no longer so easy to receive investors and financial institutions
in Russia and abroad have strengthened their position vis a vis Russian energy sector.
Implementation of strategic decisions in Russian energy sector requires also relevant
expertise. In many fields Russian energy companies are leading, but there are also areas, like
for instance development of energy projects offshore, where they for various reasons lag
26
To see the whole list see Appendix 1.
12
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
behind their Western counterparts. In order to cope with this type of problems they can either
seek alliances with foreign energy companies having required technical or managerial
expertise, or hire suppliers of technological solutions among key actors in the global supply
industry. This means that the ability of the Russian energy actors to realize their strategic
projects may also depend on strategic decisions of their rivals or suppliers of technical
solutions.
In her presentation on modernisation and innovation programmes in Russian state owned
companies given on 25 December 2009 Russian Minister of Economic Development Elvira
Nabiullina presented a list of the most important technological players in various areas of
importance for the future of Russian energy sector.27 She identified Petrobraz and Halliburton
as the most important global and Gazprom, Rosneft and Zarubezhneft as the key Russian
actors working on deep water offshore drilling, Halliburton, Schlumberger, GazpromNeft,
Rosneft and Zarubezhneft as the key players in the area of increasing the level of extraction
from oil fields, Japanese companies and Gazprom and Rosneft as leaders in hydrate
extraction, EnCana Corp, Burlington Resources, Davon Energy, Marathon Oil,Southwestern
Energy, XTO Energy, Edge Petroleum, Schlumberger and Gazprom as the key players in the
emerging shale gas market and Shell, Suncor, Petro-Canada, Husky Energy Inc and Rosneft
as leaders in global and Russian extraction of oil from oil sands. All those actors have either
direct or indirect stakes in Russian energy sector – some of them as key Russian energy
players, others as providers of technlogical solutions and know how that is about to change
the international energy game, which has also consequences for Russia, and as actual or
potential actors in the Russian energy game.
Energy expert community, both Russian, such as the Institute of Energy Studies of Russian
Academy of Science28, and Western, such as CERA29 or Oxford Institute for Energy
Studies,30 have also their own specific stakes in Russian energy sector, as much of their
activity is directed towards that sector and is paid by those who are interested in getting better
understanding of the situation in that strategically important – and not only for Russia –
branch of the Russian economy.
Identifying key actors and stakeholders in Russian energy sector is one thing, but the key
issue here is to understand who in reality runs Russian energy sector. An indirect answer to
that important question was provided recently by Russian media that have started speculating
about the forced departure of the Russian Minister of Energy Sergey Shmatko.31 According to
those sources Shmatko who is an outsider coming from the country’s nuclear sector and
having no personal and informal connections with key actors in oil and gas sector, has huge
problems with managing the industry. In the opinion of many business leaders representing
interests of Russian oil and gas industry Shmatko was not up to that job. This forced them to
discuss the most important energy issues with those who were described as key political
players in the energy sector – Prime Minister Vladimir Putin, Deputy PM Igor Sechin and
President Dmitri Medvedev. The fact that those three play key role in Russian energy sector is
not anything surprising as this trio have been managing Russia’s energy sector for almost a
decade. What is, however, very interesting is to try to learn what are their respective roles and
influence in Russian energy sector, who plays the first violin, whether they cooperate or fight
and what are the decisions they make and how those decisions do change Russian energy
sector.
27
http://www.economy.gov.ru/minec/press/news/topnews20091225
http://www.eriras.ru/
29
http://www.cera.com/aspx/cda/public1/home/home.aspx
30
http://www.oxfordenergy.org/
31
http://www.lenta.ru/news/2010/08/26/close1/
28
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Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
According to most Russian expert it is Vladimir Putin and his governmental power vertical
that play the part in decision making process. The government is divided into two groups with
different roles. The presidium is made up of 16 members while the rest of ministers do not
meet there. The key energy actors in that body are Vladimir Putin, Igor Sechin (TEK
Commission + Rosneft), V. Zubkov (Gazprom), Igor Shuvalov and Alexei Kudrin. Minister
of Energy Sergei Shmatko is not invited to join this exclusive club and this seems to confirm
his rather marginal role in the strategic management of that sector.
In addition to the government itself the issues related to energy sector are also dealt with in
the Government’s Apparatus led by Sergei Sobyanin with a strong personal Tyumen
connection. Energy related issues are managed in this body by Sergey Gaplikov, the former
head of government of the Chuvash republic who is responsible amongst many other things
for development of industry, energy, transport and communications, effective use of natural
resources and management of federal property.
Figure 2. Presidium – Putin’s Politbureau?
While Putin plays a key political and strategic role in the management of the energy sector he
delegates the daily management of that sector to his deputy prime minister and confident Igor
Sechin. According to numerous articles Sechin has been playing a key role in that sector at
least since 2003, when he was believed to be one of the key figures behind the attack on
Yukos that led to reconfiguration of the oil sector and strengthening of the state’s role in it
through Rosneft. 32 Since July 2004, after being elected the chairman of Rosneft’s Board of
Directors, a position that he holds until today, Sechin has been playing an even more active
part in the sector. He is believed to be the leading figure of the siloviki faction and the main
opponent of the Gazprom lobby, led until 2008 by Dmitri Medvedev. Russian sources assert
that due to his close ties with Putin Sechin was able to torpedo Medvedev’s attempts at
reforming Gazprom in 2003 and plans to merge Gazprom and Rosneft in 2005.33 In the
opinion of some Russian experts Sechin should be viewed as the second most influential
32
33
http://www.lenta.ru/lib/14160890/full.htm
http://www.lenta.ru/lib/14160890/full.htm
14
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
person on the country’s informal power map, even more important than the country’s
president.34 His role in the Russian energy sector is formalized by the fact that he heads the
Governmental Commission on fuel and energy complex, the mineral resource base and
increasing the energy efficiency of the economy.35
The list of members of that commission and their institutional and business affiliations is also
a very useful guide to all those who want to understand who are the key players in the Russian
energy sector. This list is made up of 32 names representing both various state organs and the
Russian business community. Russian legislature is represented by two names – N.
Komarova (chairman of the State Duma Committee on Natural Resources) and Y. Lipatov
(Chiarman of the State Duma Committee on Energy).
Russian state organs have 14 representatives in that body: I. Sechin (deputy PM), Sergey
Shmatko (Minister of Energy), A. Belyaninov (head of the Federal Customs Service), S.
Voskresenskiy (deputy minister, Ministry of Economic Development), A. Golomolzin
(deputy head of the Federal Anti-Monopoly Service), , S. Kudryashov (deputy minister,
Ministry of Energy), N. Kutin (head of Rostekhnadzor), I.Levitin (minister, Ministry of
Transport), A. Ledovskikh (Rosnedr), A. Novak (deputy minister, Ministry of Finances), S.
Novikov (head, Federal Tariff Service), Y. trutnev (minister, Ministry of Natural Resources
and Ecology), A. Ustinov (Sechin’s aide, secretary of the Commission), and Y. Yakovlev
(head of service, Federal Security Service, FSB).
16 members of the commission represent the interests of companies active in Russian energy
sector: V. Alekperov (Lukoil), V. Bogdanov (Surgutneftegaz), S. Bogdanchikov (Rosneft), O.
Budargin (FSK YES – Federal National Electric Grid), A. Dyukov (Gazprom Neft), B.
Kovalchuk (Rosatom), I. Makarov (Itera), S. Maslov (St Petersburg International Commodity
Exchange), A.Miller (Gazprom), L. Mikhelson (Novatek), D. Ponomarev (Market Council to
organize an effective system of wholesale and retail electric energy and power), Sh.
Takhautdinov (Tatneft), N. Tokarev (Transneft), G. Khan (TNK-BP), N. Shvets (Holding
MRSK – IDGC Interregional Distribution Grid Companies) and V. Yakunin (Russian
Railroads).
This list of names is however more difficult to interpret than one could expect due to the fact
that many of the ‘commercial’ actors are in fact controlled by the Russian state and their
representatives can therefore be said to represent not only the interests of the companies but
also those of the Russian state. This is particularly true of such actors as Rosneft (state’s share
via Rosneftegaz – 75.16%), Gazprom Neft (95.7% shares owned by Gazprom), Gazprom
(state’s share 50.002%), Tatneft (with 36% shares owned by the regional authorities in
Tatarstan), Transneft (with 100% state’s share of votes and 78.1% f capital), Rosatom (state
corporation) and Holding MRSK (53% state share), FSK YES (79.11% owned by state), and
Russian Railroads (100% owned by Rosimmushestvo).
The composition of the TEK commission led by Sechin seems therefore to confirm the
dominant position of the Russian state – and ‘state friendly’ actors, such as Surgutneftegas –
in the country’s energy sector. Even actors where the state does not have direct economic
interests seem to be willing to stretch themselves to accommodate state’s interests. Quite
recently Lukoil expressed for instance some anxiety that the authorities could react negatively
if the company were to spend money on buying ConocoPhilipps’ shares instead of investing
in new projects.36
34
Pribilovskiy, Vladimir (2010) Vlast-2010. 60 Biografii, Moscow: Tsentr Panorama at
http://scilla.ru/works/knigi/vlast2010.pdf
35
http://www.government.ru/gov/agencies/143/
36
Malkova, Irina (2010) Ispugalis’ vlasti, Vedomosti 25 March.
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Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
As far as the role of the president and his circle is concerned it is more difficult to map their
impact on energy sector. ‘Medvedev’s ‘first circle’ is made up of 33 top figures, most of them
inherited from Putin’s administration. If we compare Medvedev’s closest circle from 2008
with that from middle 2010 we discover that there are only 8 new names on that list and that
huge majority of those who are still around Medvedev had been in the Kremlin also under
Putin. The Presidential Administration has 15 departments and the president heads the State
Council, the Security Council, additional 13 presidential councils and 9 presidential
commissions and is the country’s commander in chief
Medvedev’s most important advisers are Sergey Naryshkin with whom he discusses
corruption-related issues, Vladislav Surkov main interlocutor on political issues and Arkadiy
Dvorkovich, head of the Expert Department, who advises Medvedev on economic issues.37
In addition to those three Medvedev seems also to rely on Konstantin Chuichenko –
Medvedev’s co-student from the Faculty of Law at the Leningrad University, former head of
the legal department of Gazprom, now head of the Control Department of the PA, and on Eva
Vasilevskaya who after having worked with Medvedev since 2005 replaced in 2009 Putin’s
era main speechwriter Dzh. Pollyyeva as the Head of Referentura. Also Igor Yurgens, head of
INSOR’s board is said to have access to Medvedev’s ear.
The picture of how power is shared at top of the power pyramid is based on the analysis of
formal and institutionalised power relations. However, in order to understand who has the real
power one has to look also at informal power relations. Those are shown in the table below.
Figure 4. The internal informal power map.38
Among those energy actors who do not have any formal positions in the Russian state
structures a special attention should be given to Gennadii Timchenko who is a relative
newcomer on the Russian reputational power map, but seems to become one of the key
players in Russian energy sector.
37
lenta.ru/news/2010/08/25/address/
Russian Pundit Talks about Kremlin Clans, Press Secretary Timakova's Ascent, Svobodnaya Pressa,
December 11, 2009, JRL 227/2009.
38
16
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
Born 1952 – the same year as Vladimir Putin – he was ranked 31 in 2007; 29 in 2008 and 35
in 2009 among Russia’s Top Hundred most influential figures. He graduated from Mechnical
Institute in Leningrad in 1977 and worked KiNEx (Kirishineftekhimexport), subsidiary of
Surgutneftegaz between 1987 and 94. In 1990 he decided to leave Russia to work for
FINLAND URALS. In 1997 he founded Gunvor, the third biggest independent oil trader (60
mt in 2006, 83 mt in 2007, and more than 110 mt in 2008) and in 2007 he sets up Volga
Resources, Luxemburg based investment company. On 27 May 2009 Volga raises its stake in
Novatek, Russia’s biggest independent gas producer from 13.13% to 18.2% and Timchenko
elected member of Novatek’s Board of Directors. On 05 March 2010 Volga acquires
additional 2.57% in Novatek increasing its share to 20.77%. In that way Timchenko
expanded his interests from oil trading to Russian gas industry where he is believed to
cooperate closely with Sechin in strengthening an anti-Gazprom coalition. His success in
Russian energy sector is often attributed to his friendship with Vladimir Putin.
Another close friend of Vladimir Putin, Gergard Schröder has also become a key player in
Russian energy sector through his role as the head of the Shareholders’ Committee in the
Nord Stream AG, a joint venture company that realizes one of Russian strategic energy
projects. It is by looking at how this project has been managed at the strategic that we hope to
be able to disclose how the Russian energy sector really works.
How?
The question of how strategic decisions in Russian energy sector are actually made is the
most difficult one to be answered. This has much to do with the more general problems faced
by those who want to study decision making in both Russia and elsewhere, but also with the
fact that this sector of the Russian economy is even less transparent than many others and is
an arena of fierce infightings for political and economic control of what is seen as most
important Russian economic milch cow.
There are, however, some possibilities allowing us to get better insights into strategic decision
making process in Russian energy sector. In my previous study devoted to that problem I
analyzed how decisions were made in the last phase of realisation of one of Russia’s strategic
energy projects, the construction of the Nord Stream gas pipeline linking Russia with energy
custumers in Germany, the Netherlands, the UK and France.39
In order to understand which decisions were needed and how those decisions were made I had
to start by identifying key actors involved in that process, to learn what were the main
challenges faced by the project in that phase, which decisions had to be made, who took those
decisions and how they influenced the realisation of that project.
As far as actors were concerned the project was realised by a relatively small company – Nord
Stream AG – that was established on 2 December 2005 (as the North European Gas Pipeline
Company). The company has its seat in Zug, Switzerland and its branch office in Moscow. In
2010 the company had a staff of around 140 people. The development of the project is
coordinated by two bodies – the Nord Stream Management Committee led by Mathias
Warnig that is responsible for the technical and economic side of the realization of the project
and the Shareholders Committee led by the former German chancellor Gerhard Schröder
whose main task is the supervision of the project on behalf of its owners. The company is
today owned by Gazprom (51%), BASF (15.5 %), E.ON Ruhrgas (15.5%), Gasunie (9%) and
GDF SUEZ (9%) and the process of decision making in Nord Stream AG is therefore also
39
Godzimirski, Jakub M. (2010) How Strategic Decisions Are Made in the Russian Energy Sector? The Case of
Nord Stream, RUSSCASP Working Paper
17
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
influenced by decisions taking by those five companies and their respective management and
owner bodies.
As all those companies, with the exception of Gazprom, are located in the EU and the landing
point of the pipeline is located in one of the EU countries, their activities, also in Nord Stream
AG, should be regulated by EU’s laws, i.e. by supranational legislation. It is, however,
Gazprom, Russian state owned gas giant that is the most important actor taking part in this
Nord Stream gas game. The company owns a controlling stake of 51% of all shares in the
project and is itself controlled by the Russian state that owns 50.002% shares in it. As the
Russian state is strongly represented in Gazprom’s policy and decision making bodies, it may
be justifiable claimed that the Russian state has a decisive say in all Nord Stream related
matters. This may also mean that several Russian state actors got involved in the process of
decision making surrounding that project. How can one verify what has been the role of the
Russian state in that project?
Before we will try to answer this question, it would be useful to see what the challenges faced
by Nord Stream AS in the last phase of the project were and who was ‘assigned’ to deal with
those serious problems in order to make the project happen. In my opinion, Nord Stream
faced following strategic, operational and tactical problems in the last phase of realisation of
that project.
The key strategic issue was to secure access to Exclusive Economic Zones of the countries
located along the planned pipeline. This goal was to be achieved by all available means, such
as political persuasion, PR campaigns, good-will policies, conducting extensive
environmental impact assessments in line with the Espoo convention and other requirements.
Another strategic goal was to secure Gazprom’s market shares in Europe in a situation of
falling demand for piped gas, growing competition from LNG and shale gas, and more focus
on alternative, preferably renewable sources of energy in Europe.
In order to achieve those two strategic goals one had to make energy dependence on Russia
look less challenging, which was not an easy task taking into consideration the January 2009
crisis in Ukraine. Another operational goal was to de-securitize energy relations with Russia
which was especially difficult in the wake of the August 2008, not least in Sweden where Carl
Bildt adopted a harsh approach towards Russia.
In order to achieve those goals it was especially important to change the image of the project
from being seen as a threat to energy security of some actors to being seen as a part of the
solution to the European energy security dilemma. To make it possible the wonwers of the
project had to change the image of the project from being a bilateral geopolitically driven
Russian-German / Putin – Schröder undertaking to the multilateral, European project of key
importance to European energy security based on environmental friendly technology.
Diversification of supply routes, that was the main Russian strategic rationale for realisation
of that project, was to be presented not as a challenge but as a solution to the problem and
should be viewed as providing additional security not only in the case of political and
economic problems between Russia and transit countries, but also in the case of possible
technical interruption of gas supplies to Europe.
To learn who did what and how in the last phase of the project (2008-2010) I examined how
that process was covered in Russian official media and in the official information channels
owned by key Russian energy actors as identified in the first part of that study.
The table below shows who could be identified as ‘political’ owners of the project. The
number of hits in the last column shows how many times the string Severnyy potok has been
18
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
found at the respective websites belonging to Russian state institutions with role in the
country’s energy sector.
Figure 5. ‘Owners’ of the Nord Stream project
The same information channels, plus the companies’ websites and the website of Rossiyskaya
Gazeta were used to gather maximum of information on the decision making process in the
last phase of the realisation of the Nord stream project. Then the data were fed into a database
with special codes describing actors and their decision making activity. The numbers in the
table show how many hits representing decision making activity each of the channels had and
what was the role of each actors in addressing strategic challenges faced by the project.
Figure 6. How are decisions made and by whom? The Nord Stream Case.
19
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
A detailed analysis of this decision making process has revealed that the strategic success –
getting access to all needed economic zones – was achieved by a coordinated effort of all
actors involved and that this strategic success was achieved by a combination of means uses
by those actors, the most important of those means being the massive use of PR tools and
focus on issues of greatest importance for foreign audience and fotreign policy makers.
This coordinated and successful effort in the last phase of realisation of the strategically
important Nord Stream project indicates that the Russian political and sectoral elite is capable
of mounting complex strategic operations when the political and economic stakes are high.
This Nord Stream operation can be therefore treated as good exemplification of how national
grand strategy can be realised in this specific geographical, sectoral and historical context; but
this operation is also a good illustration of the importance of the energy sector in Russian
grand national strategic designs.
20
Jakub M. Godzimirski
Understanding Russian Strategic
Decisions in Energy Sector
Appendix 1.
21