Regarding Russia

                Central Moscow, drawing in pencil, ink, and Copic marker by the author.

Regarding Russia

Note: I will be writing more on specifics—both historical and current—of Russia's nuclear industries. This short op-ed just introduces a few isses and thoughts on those issues, so if it seems detail is missing here or there, it wasn't possible in a short blog post to cover all the ground. More to come later, as they say.

Russia has recently been in the news more than we’ve seen for ages, thanks to the Edward Snowden situation, new Russian federal laws against homosexual propaganda and the Boston bombing case where two Russian-born brothers with Chechen sympathies undertook an act of terrorism. Of course, the icing on the cake is that President Obama has decided to skip his planned summit with Russia’s President Putin—mainly over the fact that Russia provided Snowden with temporary refuge for up to a year. While President Obama’s frustration with the Snowden situation is both expected and logical, his efforts to snub Putin will probably do more harm than good in the long run to the United States’ own interests in regard to Russia. Putin for his part, will probably not much care. To him, Obama’s actions will seem those of someone who would rather push a problem aside than deal with it head-on.

Vladimir Putin came to power under Boris Yeltsin as Yeltsin’s First Deputy Chief of Presidential Staff for Regions (a position with not direct equal in the US government, but a sub-cabinet position) and later as the head of the FSB (equal to director of the CIA or FBI in the US, however, in Putin’s case with Yeltsin, Putin probably had around the degree of influence of a National Security Advisor or even Secretary of State). Prior to his roles in Yeltsin’s government, Putin was a career officer of the KGB. When Yeltsin stepped down from power, he hand-picked Putin due to Putin’s image as a strong, tough, leader who could get things done. It was a smart move, no matter what we may say of what has come in later years: Putin faced the once-again growing problem of Chechen rebels and also corruption in both governement and business. Yeltin, in poor health, did not appear in the least to be the man to tackle such stormy weather, but Putin did, and ever since then his hallmark has been his concept of “strength” and “character”. To cancel a planned meeting and avoid talking about difficult topics would not win a sliver of respect from Putin and indeed, allows him to wash his hands of the whole situation to a degree: Putin simply now can offer that he would have gone ahead with the meeting, it was the American who backed out.

I spoke tonight (morning, in Moscow) with a friend who is a young executive in a major Russian energy company. My main question for him was: How will the current freeze drifting upon Russian-American relations right now like an early, especially cold and brutal winter affect business between Russian and American companies? It will have little impact, my friend Anton said, unless the US does take drastic measures such as embargoes which he doesn’t see happening. I tend to agree with him. Russia is in a rather unique situation for a nation of its size and despite whatever gloom and doom you may hear of it, a nation of considerble wealth, too. Moscow has more billionaires per capita than any city world-wide, and Russia’s middle-class has been growing in a steady fashion over the past decade. Indeed, one of the key aspects of contemporary Russian life that helps keep Putin in power (he’s been at one or the other of the nation’s top two political offices for over a decade now) is the economy. As long as the economy seems to be looking up, Putin’s opposition will have a tough sell in calling for his exit. This economy is based mainly on the following sectors: energy (mainly oil and natural gas); raw materials (mainly mined ores); refined materials made from domestic raw resources (steel, other metals); military export goods; financial and associated services; and domestic goods and services. What Russia is selling on the international market is mainly raw materials and industrial exports, plus the heady oil/gas business it does with Europe and other markets. Domestic markets are interesting in Russia: a lot of things are imported—you’ll see a lot of adidas and Nike being worn and it’s actually hard to find Russian clothing brands or consumer electronics these days, or at least ones anyone actually wants. Anton I know uses an iPhone, a MacBook Pro, and numerous other Apple devices. Gazprom, the largest and wealthiest of Russian companies, recently built a custom multi-million dollar communications and logistics software platform for its executives and guess what the primary terminal for its portable use is? An iPad. Despite this, there is a social network called Vkontakte which is so much like Facebook it’s known even in Russia as the “Russian Facebook”. Certain products and services are thus not imported or at least domestic alternatives have sprung up and commanded the largest market shares whereas in other areas, there is no foot-hold for domestic brands at all it appears.

Which brings us to nuclear power. All Russian nuclear-associated businesses in some sense track back to the massive Rosatom which is at once a state corporation and a regulatory agency all in one, with oversight of all civil sector nuclear activities and many military-oriented ones, too. Think of Rosatom as the NRC owning Westinghouse and also having majority control of the Shaw Group and Lockheed-Martin and you’re halfway there. Under Rosatom comes Atomenergoprom which controls all aspects of civil nuclear power and under Atomenergoprom comes Tekhsnabexport which deals with the export of nuclear fuels and associated products and Atomstroyexport which is in the business of nuclear facilities design, planning, and construction and is doing a healthy business now in Vietnam and elsewhere building the next geneation of nuclear power facilities. Atomstroyexport has taken a cue or two from the Russian aerospace industry which is pushing its newest crop of fighter jets on India, noting that Asia beyond China and Japan is now becoming a vast new market for complex technologies and while the money exists to invest in these technologies (as does the will, apparently), these nations will need to import the lion’s share of them from elsewhere—from places  where these are clearly established not only as viable products but also where the business structure exists already.

So, all of nuclear is state-owned in Russia just like back in the good old Soviet days? Not exactly. Private companies do exist but to form a private company associated with nuclear technology in any regard you need to make a strong case that it doesn’t duplicate the areas already under Rosatom’s established efforts or else will offer something unique and of profit to work alongside those areas. The private company (though still under Rosatom’s regulatory jurisdiction) STC Nuclon is a prime example. Nuclon provides consulting and, most-importantly, export services for radioisotopes, mainly for medical and scientific applications (and if you should need some polonium-210 and the NRC is oddly willing to allow you to have it, Nuclon is a leading source for that, too). One reasons that Nuclon operates with great independence is that it was established as an LLC in 1992 before Rosatom itself was reformed out of the old Soviet MinAtom state corporation. By the time Rosatom was up and running (though they’d mainly just changed the carpet and drapes, so to speak, over at MinAtom), Nuclon was already well underway and no one really had the heart to say anything.

In something of the same guise, while many large-scale enterprises such as Gazprom and ALROSA (the state diamond mining and fabrication corporation, which controls the world’s largest reserves of industrial-grade diamonds) are state-owned in whole or part, the Russian government very much encourages the establishment of small business and especially those in emerging technological fields. If you want to open a business that has anything to do with smartphone apps or the internet, you’ll probably get a very warm welcome. If you’re a Russian looking to do such, all the more so, but foreign interest is certainly desired, too. One of the growing problems the government somehow must fight is the “brain drain” of young Russian scientists, engineers, and other experts who are leaving the mother-land for fortunes elsewhere—probably, to India and Southeast Asia or the Middle East more and more, right along with those reactors and jet engines.

So, back to Mr. Putin once more: Putin and United Russia seemingly have two primary goals for Russia currently, the first being a “Russian” Russia, which is to say, a Russia based on the traditional values of its culture and the Russian Orthodox Church. Hence the push back against gay rights and the xenophobia directed at ethnic minorities. There is a fear in Russia of the US and moreover, the EU, trying to remake Russia in the mold of Western Europe and that fear is something that Putin and his king-makers like Valentina Matvienko are very adept at using to their political advantage. The second goal is a more-robust economy in every regard. With nuclear, there is a rather dim view left from Soviet days that domestic power needs are something that has to be provided for, yet an area where there’s no profit, so export is the main way to go. Keep in mind that in response to the human rights issues of concern in Russia, some have advocated a boycott of Russian vodka, and probably vodka has been suggested because, really, what else do people even think of buying that is Russian-made? (Nonetheless, much “Russian” vodka is no longer even made in full in Russia these days.) The real exports are the petrochemicals, the nuclear faclities designs, the Sukhoi PAK-FA fighter, and industrial diamonds. The markets these items reach are either ones Mr. Obama has little control over such as India’s interest in the PAK-FA (really, if India cared much about America’s wishes, wouldn’t it be going for an F-35 or something like it instead?) or ones where any discouragement towards using Russian goods would have a chain effect on something else (it’s rather hard to find a new supplier of industrial diamonds overnight). So Putin isn’t that worried. We should be, though. Putin’s views are in many ways very myopic but in at least the mid-range term (the rest of his life, if not longer) they may prove quite cunning for him. Putin is bit by bit restoring Russia to the type of cloistered economy that doesn’t place well with the economies of the US and Western Europe, however, given the state of much of Europe’s economy right now versus the growth in Asian markets, Russia now has a chance to court emerging markets that were next to nothing at the apex of the Cold War. Russia’s nuclear industry will be, mark my words, one of those growth industries. How can it not?

On the general topic of Russia’s contemporary economy, I highly recommend the following two books:

Petrostate: Putin, Power, and the New Russia by Marshall I. Goldman

The Oligarchs: Wealth And Power In The New Russia by David Hoffman

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