Australia pleads for mining favour in Russia
MOSCOW (Mineweb.com) -- Trade ministers are like the Fuller brush salesman. The job requires long days and hard traveling, sleep-short nights in dreary hotels, selling a premium brand-name for a cheap product that customers usually think they need no more of. And when the salesman returns to headquarters, the boss hardly notices him. Mark Vaile, a former jackeroo and rural property speculator, currently Australia’s trade minister, is that kind of salesman. If he Is appreciated at all, it must be by those commercial companies who have briefed him on what they want him to sell. There is nothing improper about ministers receiving that kind of request or briefing from constituents, unless there’s a commission. Brush salesmen can accept those; trade ministers like Vaile cannot, and noone is suggesting he has. The accommodations he receives are generally better than the Fuller man’s, and when Vaile was in Davos for the World Economic Forum on January 28, he was cared for in the style to which an Australian government official of his rank deserves. On that day, Vaile held a negotiation with his Russian counterpart, German Gref, but curiously, that fact, and and the subject of their discussion has remained a secret, at least in Australia. Vaile’s spokesman Chesney martin refused to respond questions. As Mineweb readers may recall from the last report in December, Australia has been the second last country in the world to refuse to agree to Russia’s joining the World Trade organization (WTO). The other objector is the United States, and although Australia will send its soldiers to die in US wars in Asia or the Middle East, it usually will not have its trade minister do America’s business for it. No, after a decade of talks on many subjects, principally about the level of government support which Moscow would be permitted to give to the Russian farmer and food producer, Australia refused last December to sign its Russian accession agreement. The reason was that it demanded two special payoffs. It is Canberra’s stubborn secrecy surrounding these, and the identity of the beneficiaries lobbying Vaile to procure them, that was exposed in January, when Vaile met Gref in the Swiss Alps. Vaile told Gref that there were two prices for Australia’s signature on his WTO ticket – one, a benefit for Australian pipeline construction companies, and the second, a benefit for Australian mining companies seeking exploration and mining licences in Russia. The first came as quite a surprise to the Russians. It was a demand for government-guaranteed access for Australian companies to pipe-laying and pipeline construction contracts which Russia’s oil and gas sector is planning to build over the next decade. The pipeline business is a bonanza. As Russia has now pushed ahead of Saudi Arabia to become the world's biggest exporter of oil and gas (on an energy equivalent basis), accounting for almost one-fifth of the cross-border trade in energy across the globe, production of the specially welded, anti-corrosion pipes required to move that energy to market is very big business. The Russian Fund for Pipemaking Development, the domestic industry lobby, told Mineweb it anticipates that at least 2 million tons of new large-diameter pipes must be procured for the North European Gas Pipeline, to be laid under the Baltic and deliver Gazprom gas to Germany and other western European consumers; and for the East Siberian Pipeline project to be built by Transneft to deliver crude oil to China. Apart from domestic producers of large-diameter pipes, who have invested more than a billion dollars in the past five years, so that they can deliver pipes at the right quality for these projects, competition to supply is intense from Ukrainian, Japanese, German and Italian exporters. Indeed, the competition is so intense, Russia’s trade ministry has spent 18 months analyzing the domestic injury suffered from alleged dumping by the Ukraine, and has proposed a penalty duty scheme to limit imports. This was recommended to the Prime Ministry last month; a final decision has yet to be reached. A fortnight ago, however, President Vladimir Putin made clear that he favours the domestic pipemakers for the major new strategic pipelines. When Vaile told Gref that Australian contractors wanted a piece of the pipeline action, no Australian company had been heard of before. ExxonMobil, which is building a major new oilfield system on Sakhalin Island, in the north Pacific, says it has engaged no Australian pipe contractor. Sakhalin Energy, a joint venture run by Shell, and also in Sakhalin, confirms it knows of no Australian companies working on pipelines at their sites. Gref’s ministry says Vaile mentioned no company names. Vaile’s spokesman was asked whether at Davos he had meant that Australian pipemakers or contractors should be favoured for the North European Gas Pipeline, or the East Siberian Pipeline, or any other? Was Vaile seeking a special benefit for Australian construction companies, and what Australian companies have previously worked on Russian pipelines, or have the Arctic experience to qualify? The minister’s spokesman refuses to answer. Also silent were Gareth Meyer and John Larkin, two of Australia’s WTO negotiators based in Geneva. Bob Tyson, Australia’s Ambassador in Moscow, was silent also. A source close to the negotiations told Mineweb: “there are no Australian contractors on gas pipes, but they want to enter the sector. Unfortunately, no names were disclosed at the negotiations. [But Vaile was] speaking about expansion to the Russian market, and they are not there yet.” The second price for Russia’s WTO ticket, Vaile said on January 28, was that Moscow should allow BHP Billiton (BHPB) to gain mining licences in Russia. This was not the first time the Australians had put BHPB’s interest in the way of Russia’s accession to the WTO, and it had been Russian refusal that had brought the negotiations to a stalemate in December, when negotiators for both sides met in Hong Kong. At that time, neither Vaile nor Australia’s Geneva trade staff, nor the Moscow embassy would admit they had gone to bat for BHPB. Admitting that they have done so wouldn’t be improper. Concealing that they have done their job, and nothing wrong, is a hint of another sort. BHPB in its former guise was singularly unsuccessful in Russia during the 1990s, when it lost a modest amount of money – about $50 million – in abortive pursuit of diamonds in Arkhangelsk region (northwestern Russia), oil in the Arctic, copper in Chita (southeastern Siberia), and coal in Sakha (fareast). Little wonder that BHP closed down its Moscow representative office, and retreated to London and Melbourne. Then it reopened again, and in October 2004, the BHPB chief executive, Charles (Chip) Goodyear, paid the first-ever official call on Russia at his level. According to a press release issued by BHPB in London, Goodyear went to Moscow on a “fact-finding mission", to assess Russia "as both a market for our product where we currently sell bauxite and alumina, and potentially as a future resource base." In the statement issued by Victor Khristenko, Minister for Industry and Energy, Goodyear was reported as mentioning "the prospects of participation of BHP Billiton in Russian projects in the oil and gas, metallurgical, and coal sectors, and also in extraction of diamonds." Goodyear was also reported by the Russians as having "expressed interest in investment of significant means in natural resources development in the territory of the Russian Federation and asked the minister to designate the basic steps which are necessary to be taken into account by foreign companies for lodging investments in Russia." Khristenko reportedly told Goodyear "there should be a precise understanding of the existing legislation and the basic directions of its reform." In addition, Khristenko recommended that Goodyear conclude "a strategic partnership with Russian companies...[to] allow [BHP Billiton] to exploit advantages at reforming the legislation, to lower risks, and to receive the best representation about features of interesting sectors." In case Goodyear didn't quite get the message, Khristenko repeated his emphasis, saying "strategic partnership with Russian companies opens opportunities for cooperation between the [Australian and Russian] companies in third countries." As he was winding up the meeting, Khristenko reportedly added: "Strategic partnerships serve the improvement of positions of Russian companies both on the international commodity market, and on stock markets." Twenty months have passed, and BHPB is no closer to taking the advice he was given, although his mining and energy peers, such as Anglo American, Barrick Gold, British Petroleum, ExxonMobil, Goldfields, Rio Tinto, and Shell have all done so. In the diamond sector, De Beers and Lev Leviev have also formed Russian partnerships, though not altogether happy ones. BHPB’s spokesman Illtud Harri was asked by Mineweb to say what benefits in Russia his company believes it should be entitled to, and what is the basis of his company's entitlement claim. He replied: “We are interested in exploring possible business opportunities in Russia and have openly supported Russia's accession to the WTO. However it would be completely wrong to suggest that this support is in any way linked to BHP Billiton seeking preferential treatment. We always work within the laws as set out by host governments and will continue to do so.” BHPB would not receive preferential treatment, Gref told Vaile at Davos. Instead, Gref said that companies currently working on Russian territory could continue their work. Referring to proposed new legislation limiting foreign companies to lift oil or mine minerals at strategic deposits, Vaile was told that there would be no exception for BHPB. Gref added a point he said the Australians should accept, as had the rest of the mining world: the position of Australian companies working in Russia would not become worse after WTO accession than it is now. Since BHPB could be said to be in no position at all in either the Russian mining or energy sector right now, the Russian position was less than reassuring. Four more months of negotiations followed the Davos session, but the Russians refused to budge. On June 6, in Geneva, the two sides signed Australia’s agreement to Russia’s accession to the WTO. There had been no change in the terms since the Davos meeting, a source close to the negotiations says. After declining to respond to Mineweb’s questions, Vaile’s office posted this public announcement on June 8: "Australian exporters will benefit from better access to the Russian market following Australia's successful bilateral market access negotiations with Russia. The signing of the bilateral agreement in Geneva marks the end of bilateral negotiations between Russia and Australia during the process of Russia's application for membership of the World Trade Organization. The outcomes will improve trading conditions for Australian exporters and help provide a secure basis to expand our exports. The deal covers Australian export interests in both goods and services and will enhance access for Australian exports in areas such as meat products, wine, wool, alumina and seafood, as well as mining software and services.” The Fuller brush man could not have said it better.