Actuality November, 9, 2007

What benefit to the Russian business brought the personal diplomacy of Vladimir Putin?

On a summit Russia-EC in Lisbon the colleagues reminded the Russian president that it is the last meeting for him in such capacity. “I didn’t understand that much: was it said with joy or regret?” Putin replied with a joke. Soon he will have to withdraw from official visits. It would be not simple: in the period of work the president was absent almost year in Russia. The delegation of the Russian businessmen accompanies Putin in his trips regularly. It is time to sum up numerous business tours.

For almost eight years Putin paid 179 foreign visits in which he fully or partly spent 345 days. Putin was leaving the country three times more frequent than Boris Yeltsin and fourfold than Mikhail Gorbachev. In 2000 the contrast was especially obvious: for “late” Yeltsin every trip was an ordeal, during the visit to Uzbekistan he has nearly fallen down during the red welcome in the airport. The new president paid 26 visits for year, actively getting acquainted with neighbors and largest partners. But he also didn’t slack up the tempo: he was 24 times abroad during the last presidential year. For comparison: George Bush, who heads the country since 2001, crossed the country border 106 times – he has a chance to outstrip Bill Clinton, who, according to the data of protocol department of the White House, was the most traveling leader of the States (133 visits). And it is hard to keep up with Putin.

The thing is about ambitions, is sure Joseph Nay, the Harvard professor. “Putin tries to inspire Russian diplomacy and achieve that Russia was perceived seriously as world power”. Russians want that they were respected and were afraid abroad, and the image of the magnificent visits of Putin in the different ends of the world helps it, repeats Richard Pipes, the historian. It is needless to prove the Americans their leadership.

The routes of Bush and Putin were somewhat alike at the beginning. At first neighbors: one has Mexico and Canada, another – Ukraine with Byelorussia. Then Europe: Bush has chosen Spain, Poland and Great Britain, Putin – Great Britain, Italy, Spain and Germany. But statistics shows the difference of two political systems. In 2004 there was the obvious slump in the schedule of Bush: only nine trips. The elections – a voter prefers that the president concentrates on internal problems. Putin was also re-elected on second term in March, 2004, but this in no way influenced the intensity of his trips in 2003-2004.

No doubt: the annual summits of the Group of Eight consolidated the prestige of the Russian president, and so much troubles to decoy the club leaders to St. Petersburg were spent not in vain. Geopolitical subjects also called Vladimir Putin quite often, whether it was North Korea or Cuba. But still most putin conversations with foreign leaders necessarily contain a key phrase about mutual commodity turnover, which either “continues to grow” or “doesn’t correspond to potential of our relations yet”. Another usual turn of reports about visits is “the president was accompanied by large delegation of Russian business”. Putin thought nothing new out. “Gorbachev has been always taking with him directors of enterprises and secretaries of regional committees abroad, but there was nothing to lobby: everything was falling to pieces in the country”, recollects Evgeny Bazhanov, the former employee of international department of the Central Committee of the Communist Party of the Soviet Union. The present president has received better economic situation. And he took advantage of it.

Business on the board

“During the visits Putin always discusses the matters of our companies’ access to the local markets. It wasn’t so in the 1990th”, says Alexander Gontcharuk, the president of Sistema Financial Corporation. Recently Sistema acquired control over the tiny Indian cellular operator Shyam Telelink Ltd. The sum of transaction ($58,1 mln) shouldn’t delude: the entrance ticket to the most dynamic markets is bought. The Indian company works only in one state, but waits for the license to provision of connection services throughout the country. The main owner of Sistema Vladimir Yevtushenkov took interest in India in December, 2002, when arrived there in Putin’s retinue. Since then multimillionaire has twice flew with the president to Delhi.

Not all have to wait so long. When Putin arrived to Turkey in December, 2004 first, he at once began to speak about the desire of the Russian companies to participate in the development of the Turkish economy more active. The background was unfavorable: the court has just abolished the tender results on privatization of petrochemical concern Tupras, which has won Tatneft. The president couldn’t protect oil workers, but, when in spring 2005 Alfa Group declared about the interest to the largest in the country cellular operator Turkcell, Putin interfered again. When he was accepting the Prime Minister Redzhep Erdogan in summer in Sochi, he reminded him about the Alfa project and invited Peter Aven, the corporation co-owner, to tell the details. The transaction was made in autumn: Alfa Group paid $3.3 bln and got 13,2% stocks of the Turkish operator. Aven, who in 1999 called the large business to support the new leader, is one of the businessmen, who most often accompanies the president. For example, in autumn 2006 he was with him in Vietnam, where were hold negotiations on access to the telecommunication market of this country. Quite recently Vympelkom, controlled by Alfa, declared about the joint venture setting-up in Vietnam and plans to invest up to $1 bln in its development.

It is unnecessarily to be a multimillionaire to go abroad with the president and get a profitable contract.  For the last two years Evgeny Goudzentchuk, the director general of Zarubezhvodstroy Company, flew with Putin 4 times: to Algeria, Morocco, India and Saudi Arabia. In these all countries is a shortage of drinking water and it means that they need dams, sluices and treatment facilities, which the company can build.

“When you are introduced to the presidential pool, you have the higher status and the guarantees of the tested company”, Goudzentchuk is sure. In Algeria Zarubezhvodstroy won a contract on building of Dzhar channels system for water transfer from one reservoir to another. Three large contracts on building of HEPP Tapovan and waterworks facilities for $650-700 mln are signed in India. Works are already conducted and will last from three to five years. In Saudi Arabia they confined themselves to the general agreement on collaboration.

The company could have signed these profitable contracts by itself, but support from the top saved much time, Goudzentchuk says. In soviet times Zarubezhvodstroy was in 50 countries of the world, and in 1997, when Goudzentchuk headed the company, it was on the verge of bankruptcy. The foreign market was lost. Visits on high delegations are the real possibility to remind about oneself. Especially in authoritarian countries, where the head of the state can decide the fate of a large transaction. “The support on high-level is the main for a project in North Africa”, says Evgeny Roshkov, the managing partner of Kesarev Consulting Company, which is engaged in foreign projects monitoring of the Russian business. In 2004 Roshkov participated in a struggle for the contract on construction of transalgerian motorway at the cost of $8 bln. The companies from Canada, EC, and Russia were struggling for the contract. “It was clear from the very start that it is useless to follow the ordinary way – from subordinates to heads. The decision on the top was required”, says Roshkov. They hoped to influence Algerians by means of the presidential visit. But Putin came to Algeria too late – in 2006. The contract was awarded to other companies.

The president of the Russian Banks’ Association (RBA) Garegin Tosunyan was included to the Putin delegation only once: in May, 2007 he participated in the trip to Luxemburg. He was invited almost by chance. RBA was preparing an agreement with the bank association of Luxemburg. The document was considered worth signing during the visit, besides the dukedom is one of the largest investors in the economy of Russia and fourth according to the results of 2006. Connections of Konstantin Mozel, RBA Vice President, who comes from Ministry of Foreign Affairs, helped. It is useful to any company to have the man on the president Airplane, where the schedule of visits is made. “I was informed that I would, probably, take part in the trip, and I agreed with pleasure”, Tosunyan recollects. In the noisy airport of Luxemburg Putin was personally introducing every member of delegation to the duke. Tosunyan liked informal relations inside delegation.

Pressure and Repulse

For seven years the business agenda of Putin visits changed beyond recognition. On the first meetings with the businessmen of Great Britain and Germany the president tried to explain that the economic growth in Russia is not a joke, and investments in the Russian market can be profitable. Then stability became usual, but most contracts of the first putin term are however customary transactions on military sales, like the agreement on sale of the license to the production of fighters Su-30MKI at the cost of $3 bln signed in October, 2000 in India. And in the last 2-3 years Putin travels round the world not with requests about investments, but with investors. Large projects, like construction of bauxite aluminous complex by Rusal for $1,5 bln in Indonesia or manganese mine and factory on the tapping of ferroalloys in Republic of South Africa by Renova Company for $1bln, are examples of the last year. Appetites and possibilities grow.

The simple scheme “visit-contract” works not everywhere. According to the data of M&A Intelligence research group, in 2006 the Russian companies acquired assets on $10,3 bln abroad, and got the heave-ho at an attempt to buy a property for $50,2 bln. Certainly, here played the part the suspiciousness of the developed countries concerning quickly developing ones. But not only. Command tone in relations with business within Russia leads to that in the world any Russian company, whether it is 100% private, is perceived as the state agent. When Evraz Group was acquiring Oregon Steel in the USA, it was more important to prove the status of normal international company, but not closeness to the Russian power. After VTB acquired 5% of the European aerospace corporation EADS in 2006, Putin did not exclude the possibility to add these stocks to the capital of the United Aircraft Corporation set up in Russia. But when the main corporation stockholders, France and Germany, gave a clear hint, that third is a crowd, the president had almost to excuse himself for VTB actions and underlined that this was just a financial investment. Gazprom reputation as a political instrument of the Kremlin impeded it to acquire the British gas distribution company Centrica in 2006. In autumn that year in Germany Putin discussed with a Chancellor Angela Merkel possibility to add Sistema Financial Corporation to the capital of Deutsche Telekom, but suggestion was rejected by both authorities and management of DT.

The most famous European business project, an agreement about which was signed during the visit of Putin, only underlines the role of Russia as the raw material exporter. It goes about the North European gas pipeline; the agreement to lay the pipeline on the seafloor of the Baltic Sea was signed in September, 2005 in Germany. After a couple of months the Chancellor Gerhard Shreder, who vacated the post, headed the committee of the project stockholders that got the name of Nord Stream. That time Putin’s business diplomacy worked. Both party organizer Bazhanov and critic of putin Russia Pipes agree that advancement of business interests abroad is among the number of strong traits of the Russian president. “Maybe not in other aspects, but here Putin is a modern leader”, the American historian acknowledges. Only Putin has been repeatedly making clear that he wouldn’t follow the example of the German friend and wouldn’t go into business after resignation from the Kremlin.