CSD:Round Table: Energy Policy of Russia

On 17 May 2012 the Center for the Study of Democracy hosted a round table discussion with Mr. Vladimir Milov, Leader of the Democratic Choice movement and Former Deputy Minister of Energy of the Russian Federation. In his opening statement, Mr. Milov focused on refuting the widespread view in Europe of Russia as an inexhaustible pile of “energy muscles”. He chose to support his arguments by looking at the prospects of the two of the biggest state owned energy companies – Gasprom (natural gas) and Rosatom (nuclear energy). He pointed out that they are facing mounting difficulties and declining market shares, which they fail to acknowledge and try to hide behind a PR facade. Mr. Milov thinks that Gasprom will never restore its absolute volumes of gas supply to Europe from before the crisis, as it continues losing its competitive edge. The company’s overreliance on long-term predictable contracts and on inflexible pipeline delivery system, and the rise of alternative sources such as LNG and shale gas, makes the gas giant increasingly vulnerable to swings in consumer demand. A common feature that both Gasprom and Rosatom share is the lack of economic rationale in their business ventures. The expert acknowledged that a key element of their survival and the continuation of unprofitable projects is the indiscriminate financing coming from Russian state banks. Mr. Milov also expressed concern over serious corruption practices in the Russian energy sector.

During the lively discussion, Mr. Milov said that both South Stream and Nabucco projects have problems with their economic rationale. It was noted that the era of huge infrastructure projects is over and the SEE region should focus on LNG and the development of indigenous Black Sea gas reserves instead. Mr. Milov pointed out that there is no unified European energy policy because the member states are in notably different situations with regards to their energy needs and dependency levels. He does not believe in another nuclear Renaissance, and that gas, not renewables, will be the main beneficiary from the nuclear downturn. Mr. Milov concluded that Russia has a chance to benefit from such a development if it manages to rapidly make its gas monopoly more competitive.