At a major conference on the economic development of the Arctic, Russian experts and politicians outlined the practical steps that need to happen for Russia to realize its energy, infrastructure and geopolitical ambitions for the region.
The Prirazlomnaya offshore oil platform. Photo: RIA Novosti/Alexei Danichev
Notwithstanding geopolitical tensions, the difficult economic situation in Russia and falling oil prices, the Kremlin has continued its efforts to develop the vast natural resources of its Arctic territories. The latest example is Russia’s unveiling of its new nuclear icebreaker Arktika, which was reportedly completed on June 27. A nuclear-powered vessel capable of traversing the icy Northern territories could open up new opportunities for Russia to access the oil and gas deposits of the Arctic.
According to Marina Kovtun, governor of Russia’s Murmansk Region, the authorities allocated 41.5 billion rubles (approximately $634 million) to build new infrastructure in Russia’s Northern regions. “3 billion rubles [$45.8 million] worth of works has been completed as of today. The plan for 2016 is 4.4 billion [$67.2 million],” she said during the Conference on the Economic Development of the Arctic that took place in St. Petersburg on June 18.
The strategy for the development of the Russian Arctic is being carried out amidst a difficult domestic and international environment. However, there are some positive developments. The work on developing the region has been centralized with Russia’s State Commission for the Development of the Arctic coordinating work on the economic and social development of the region.
“The Russian Federation focuses particular attention on developing the country’s Arctic Zone and expanding its presence here. Under today’s conditions, the state’s interest in investing in the Arctic is acquiring major strategic and economic significance,” said Roman Kopin, governor of the Chukotka Autonomous Area, at the conference.
From an economic viewpoint, a number of projects are being successfully realized. For example, Yamal LNG, a proposed liquefied natural gas plant at Sabetta (northeast of the Yamal Peninsula in Russia) is being coordinated by Novatek, Russia’s largest independent natural gas producer.
The Northern Sea Route project, aimed at becoming a vital Russian transport artery within the Arctic region, is being widely discussed today. As Sergey Frank, president and CEO of Sovcomflot and member of the Presidium at the Maritime Board under the Government of the Russian Federation said: “It is anticipated that, by 2017, the volume of freight carried along the Northern Sea Route will be higher than the historical maximum and, in 2020, might exceed it by more than three times.”
While some may argue that there is yet no clear understanding of what the Northern Sea Route will actually look like, the potential is indeed quite high. “It [The North Sea Route] has a number of competitive advantages compared to other routes, including the Suez Canal and the railways. Its length means not only time en route can be saved, but also, as a consequence, the cost of fuel and other related expenditures,” according to Nikolay Kharitonov, chairman of the State Duma Committee on Regional Policy and Issues of the North and Far East.
Among other developments in the Arctic worth mentioning is a program for cleaning the territories of the region of industrial waste, Russia’s request to expand its continental shelf and the strengthening of Moscow’s military presence in the region as a reaction to tensions in relations with NATO.
However, there are problems with Russia’s Arctic development plan, such as decreasing investment activity and the difficult situation with the state budget. The necessity to switch resources to the task of integrating Crimea into Russia and supporting Donbas also had an economic impact on Moscow’s plans for the Arctic.
The work is under process, the funds are allocated, but the region lacks investment – this seems to be the consensus voiced by the participants of the conference. But for this, attractive conditions need to be created. For example, similar to the development of the Far East, the region might benefit from the creation of special support zones, the majority of speakers agreed.
“This should be the projects of federal importance, as, first and foremost, they will be aimed at the development of the whole region, not of the separate sub-regions… The key actors here should be the regional governments and business,” Aleksandr Tsybulskiy, Deputy Minister of Economic Development of the Russian Federation, explained.
The vast potential of the Arctic is also recognized by Europe. “The investment potential of Europe’s Far North is great,” said Timo Rautajoki, president and CEO at the Lapland Chamber of Commerce. The urgent problems now, as he pointed out, are the weak Arctic institutions and the low oil prices that have been keeping the investment in the region low. From his point of view, the region is more important now than ever and it is vitally important to ensure Russia and Finland resume their cooperation in such areas as shipbuilding.
International cooperation: Pivot from the West to the East?
Indeed, international cooperation always was and remains key for the realization of any big project in the Arctic, including oil and gas exploration and building transport infrastructure. This is an axiom that everyone understands, according to Pavel Gudev, senior research fellow at the Center for North American Studies of the Institute of World Economy and International Relations (IMEMO) at the Russian Academy of Sciences.
“The sanctions regime hit hard the future prospects of any cooperation. Moreover, countries like Norway, Russia’s northwestern neighbor and a non-member of the EU, supported the European sanctions. It looks like all promises of friendship voiced before have been forgotten,” Gudev told Russia Direct.
Alexander Sergunin, professor in the Department of International Relations at St. Petersburg State University, agrees: According to him, it is highly unlikely that, given the sanctions, full-fledged cooperation could resume, especially in the economic sphere. The majority of joint energy projects with foreign companies were frozen. The only remaining large project with Western capital involvement is Yamal LNG, where the French energy company Total holds a 20 percent stake.
With regard to Finland – Russia’s traditional partner in shipbuilding – cooperation also seems to be in a deadlock. For a long time, parts of Russian atomic icebreakers were built in Finland. Currently, there are no Russian orders for that and even though speakers at the Arctic Conference held in St. Petersburg agreed that cooperation in this area can be continued given the right conditions, there are no signs yet that this might change soon.
Sergunin proposes the best way to deal with this situation: “Given that the sanctions regime will persist for some time, it is necessary to look for niches in Russia-West cooperation that are not affected by sanctions, that is technical support, technology transfer, educational exchanges, support to the indigenous peoples of the North, cultural cooperation, health care, and journalistic projects,” he explained to Russia Direct.
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Meanwhile, to substitute for the loss of Western investors, Moscow is trying to win capital investment from countries in the East. For now, only Chinese companies find this opportunity attractive. For instance, Novatek sold 20 percent of its Yamal LNG shares to China’s CNPC and 9.9 percent to China’s Silk Road Fund.
The Kremlin aims to balance its investment policy by attracting capital from China and other countries that did not approve the Western sanctions. Potential partners might include South Korea, Vietnam, India and Singapore, according to Sergunin.
Indeed, India, South Korea and even Japan might present themselves as reliable partners, thinks Gudev. However, he warns that bringing non-Arctic powers to the table and including them into the Arctic dialogue might be a risky deal. For example, one should understand that, for Beijing, for example, getting involved in the Arctic agenda is not only an economic question, but also a matter of increasing its international status.
“China is not an Arctic country, it is interested in resources and transport opportunities. Besides, Chinese statements that Beijing and Moscow have the same rights and options in the Arctic, is not simply a sign of craftiness, but clear political speculation. Hence, encouraging non-Arctic states to get involved in the region is quite risky in strategic terms,” he says. “In specific projects – probably yes, but not in all areas.”
Therefore, it is necessary to choose partners wisely and carefully starting with scientific cooperation – an area where a potential partner cannot have any financial or resource interest. In this regard, South Korea presents itself in a favorable view. The nation has two generations of polar explorers and they are ready to collaborate, which is a good opportunity for Russia to strengthen ties and discuss serious projects.
The “pivot to the East” is a kind of a forced measure, thinks Gudev. In such a shared sea region like the Arctic, it is much easier to develop cooperation with those countries that have direct access to it – the U.S., Canada, Denmark, and Norway. Although today the situation is difficult, cooperation still takes place, even with the U.S., in critical areas, namely in ecology and shipping control.
“Moreover, for American experts the Arctic remains an area where cooperation with Russia has no alternative. Russia needs to take an advantage of it, discuss it and keep it on the agenda,” Gudev points out. For the U.S., cooperation with Russia in the Arctic stands on the same level with other important issues: nuclear non-proliferation, North Korea and counter-terrorism. “This is a very pragmatic approach – a clear realpolitik,” he says.