Exclusive interview of Russian Economic Development and Trade Minister German Gref to The Financial Express

Question: What do you think is the biggest bottleneck in achieving President Putin's target of a $10 billion trade turnover between India and Russia?

Answer: The Russian government has set the goal to triple the current Indo-Russian trade turnover and to give a fresh impetus to the entire inter-state relations. As a minister responsible for foreign trade, I would describe the current state of bilateral trade as fairly good, but losing its dynamics and absolutely insufficient. This is especially true if compared to cooperation with our other partner in Asia, China. The Russo-Chinese trade already exceeds $20 billion. In the next five to eight years it is expected to reach $60 billion. There are several countries in Europe with which we have a bilateral turnover that is five or more times bigger than with India.

What is the reason? I believe that the main problem is in the excessive bureaucracy our countries have inherited from the period of a centrally-planned economy.

Russia and India have finally realized that the new tools of cooperation are direct contacts between our businessmen with maximum state support. This requires simplification of visa issuing procedures for Russian and Indian business communities.

We have already made certain steps in this direction, but they are certainly not enough. We can achieve a positive result, a breakthrough in bilateral trade and business, if we work hard at de-bureaucratizing business contacts between our countries and private companies. The Russian-Indian Trade and Investment Forum is a good example. It is a joint project between state institutions and the Business Council for Russian-Indian Cooperation set up by entrepreneurs last year.

I would like to note that we are satisfied with the existing mechanisms for coordination and expansion of our interaction within the inter-governmental Indo-Russian commission for trade, economic, scientific, technical and cultural cooperation. At the meeting in New Delhi on December 8, 2006, it agreed to drastically increase the scale of trade and economic cooperation and to make it a priority to develop cooperation, apart from energy cooperation, in such sectors as the steel industry, machine building, information technology, space, pharmaceutics, bio technology, and transport construction.

We have also introduced measures to boost bilateral trade. For example, there are plans to open trading houses, and to set up an online information service for the two countries' business circles.

I have to add that one of the problems impeding trade growth is the undecided issue of the Indian debt inherited from the Soviet era. But the Indian and Russian leaders have been discussing ways to resolve it, and I am confident that they will find a satisfactory solution.

Q.: How can Indian companies find greater involvement with the oil and gas sector in Russia?

A.: Cooperation in this sector has deep historical roots. Soviet specialists helped India to drill wells and produce oil, and create the infrastructure for the Indian energy sector. They helped to build refineries in Ranchi, Koyali, Barauni and Mathura. But that was in the past. The agreement on strategic partnership between India and Russia signed in October 2000 put large-scale energy cooperation back on the agenda. With the parties' mutual consent, the agreement names energy as the most promising sector.

I would like to remind your readers that after Russian President Vladimir Putin's recent visit to India, Russian state-owned oil company Rosneft and Indian Oil and Natural Gas Corporation (ONGC) signed a memorandum on expanded cooperation. The decisive factor for the Russian major was the positive experience of cooperation with India on the Sakhalin I project. The decision to include ONGC in the project was made due to President Putin's personal intervention. In fact, the 20% stake in Sakhalin I is India's only real project in Russia. Now it has received the first batch of oil produced in Russia. At present India's participation in the Sakhalin III project to produce oil on the island's shelf is being considered.

Gazprom and Gas Authority of India Ltd. are also successfully working together within their Agreement on strategic cooperation.

Q.: Russia and the U.S. are going to compete for stakes in India's nuclear energy market. In what way Russia is addressing this opportunity?

A.: The history of our countries includes an extensive and in many ways unique practice of building power generation facilities in India. Our nuclear cooperation dates back to the 1970s-1980s. At present, Russian nuclear companies are competing with other countries, the industry's leaders, in India.

Just two or three years ago the United States rushed to be India's key strategic ally in the nuclear sphere, signed large-scale agreements on intentions, and was even ready to open up its nuclear secrets, offering the necessary technologies. Obviously, it did not do this just for the fun of it, but out of political necessity. However, time has shown where U.S. priorities lie. The proof is the ongoing construction of the Kudankulam nuclear power plant.

We view the agreement to build four nuclear power generation units in Kudankulam as an important victory in the competition for this segment of the global market. Russian specialists can later expand the Indian order to 10 units; everything will depend on India's relations with the Nuclear Suppliers' Group.

What units is Russia going to build on new Indian sites? These will be VVER-1000 reactors (a 1,000 MW water-cooled reactor), which use the most up to date technology in the nuclear industry. As many as 52 such units are already operating successfully, 14 of them in Russia. Their service life is over 1,000 reactor-years. According to independent experts and the IAEA, the Russian VVER-1000 is one of the most reliable reactors in the world. Its safety is comparable to NPPs in Europe, the Unites States and Japan. At the same time, the price to quality ratio makes the Russian reactors superior to their foreign analogues.

Q.: The lack of an efficient shipment route, which in turn has pushed up freight costs, has been one of the hurdles in the way of developing Indo-Russian trade. Is there anything in particular the Russian government is doing to deal with this issue?

A.: This is a very serious issue. The lack of efficient shipment routes hinders trade and technical cooperation. Of course, it would be great to have a railway corridor between Russia (the Pacific) and India (the Indian Ocean) via China. This project was coordinated by our three countries and Myanmar. It was designed in the mid 1950s as a South Asian - Pacific transportation system. But for a number of objective reasons, political rather than economic, it was frozen in the early 1960s. Now that relations between India, China and Russia have improved and their economies are actively cooperating, we have all the prerequisites for reviving the transportation project.

During President Putin's recent visit to India, Vladimir Yakunin, CEO of Russian Railways, had his own program. Among other issues, he discussed modernization of the country's railways, one of the longest and multiple in the world.

Russia's participation in the Southern railway corridor, which will stretch from Russia to the Indian Ocean, has already been estimated. I believe that it is a very promising and viable project.

Q.: Which sectors of the Indian economy will be attractive to Russian investors attending the First Russian-Indian trade and Investment Forum?

A.: Russia is not pursuing an aggressive policy of state investment abroad. Russian investments are mainly made by individual companies, whose possibilities have grown considerably over the past few years. Many of them would like to invest in India, and the government is prepared to support their initiative. Moreover, we could use India's debt to Russia to promote Russian investment in the Indian economy.

Each company is free to choose where to invest, while we supply them with information, help to develop ties with Indian partners, and provide visa support.

Investment possibilities in India are so numerous and diversified that it would take too long even to enumerate the sectors and companies that need foreign investment. However, there are several sectors that are bound to attract Russians' interest: the energy sector (including power generation), the production of coal and other minerals, engineering, railways, and road building.

India is badly short of electricity and is working hard to modernize, retool and build power generation facilities, and to obtain equipment for them. The Indian government is trying to attract foreign investment and technologies into the energy sector to attain these goals with minimum outlays.

However, there is certain discrimination against Russian companies and their output in that sector of the Indian economy. First, India does not accept Russian banks' guarantees of contracts, and second, it does not recognize Russian technical quality standards, insisting that equipment should satisfy international or Indian standards.

Bilateral cooperation in the coal sector mainly depends on more active involvement of Russian companies in tenders announced by Indian coal producers, as well as on cooperation with Indian and other countries' companies that are ready to use Russian technologies and equipment.

Russian investors will be attracted to the Indian construction sector, where investment activity is very high (it accounts for 40-45% of total investment). The sector needs more than $92 billion of investment annually.

Russian construction companies, working jointly with banks, may take part in tenders for subcontracts in Indian construction projects. In my view, India could make good use of Russian construction, road-building and automation equipment and technologies.

Russian businesses may also find attractive such sectors as aircraft manufacturing, ITC, and farming. In fact, they are promoting cooperation with Indian partners in plant biotechnologies, processing of fruits and vegetables, livestock breeding, afforestation of deserts, establishment of poultry farms and gardens, construction of irrigation facilities, development of new types of fertilizers and pesticides, production of agricultural machinery, and creating new types of agricultural species.

There are possibilities also in the mining industry. During the Indian visit by President Vladimir Putin, we signed an agreement on the establishment of a Russian-Indian venture to produce titanium. Project participants are Russia's Vnesheconombank (VEB) and Technochim Holding, and India's Saraf Agencies Private Ltd. A chemical and metallurgical works, which is to be built in the state of Orissa, will annually produce 40,000 metric tons of titanium dioxide, 10,000 metric tons of titanium sponge, and 108,000 metric tons of titanium slag. Russia will hold 55% of the joint venture's authorized capital. The project, which should be implemented within three years, may satisfy 90% of Russia's titanium demand.

Russian businesses may also prosper in the engineering sector. Indian companies will assemble Russian automobiles and tractors, such as Ural India Ltd, which will be established in West Bengal. It has a $4-million contract to assembly 150 Ural lorries; the first of them are being studied for transport vehicle certificate.

In short, there are many projects in India that will be attractive to the big and medium-sized Russian businesses. What they need is a desire to work in India, while government structures will give them guaranteed assistance.

SOURCE: RIA Novosti

DATE: Feb 12, 2007

Topics: NPP, Russia, Asia, India