Bloomberg: Business Executives Court Putin, Shrugging Off Spats (Update1)

By Henry Meyer

June 8 (Bloomberg) — Global executives including Coca-Cola Co. President Muhtar Kent and Royal Dutch Shell Plc’s Jeroen van der Veer will seek to expand operations in Russia this weekend, shrugging off concerns about worsening relations with the West.

The St. Petersburg International Economic Forum beginning today may result in agreements worth $3.3 billion, the Russian government says, and includes a guest list of 200 leaders from among the world’s biggest companies. Al Gore, the former U.S. vice president, will address the forum in the home city of Russian President Vladimir Putin.

“The forum will be used to show that international big business still wants to cooperate with the kind of Russia you have today,” said Andrei Illarionov, who resigned after five years as Putin’s economic adviser in 2005.

Ties between Russia, the U.S. and European Union are at their coolest since the end of the Cold War. Concerns about the Kremlin’s rollback of democratic freedoms and muscle-flexing abroad prompted U.K. Prime Minister Tony Blair to warn about doing business in Russia.

“People in Europe will want to minimize the business they do in Russia,” unless shared values are strengthened, Blair told the House of Commons on June 6.

Putin has threatened to aim nuclear missiles at European targets in retaliation for a U.S. plan to build a missile-defense system in central Europe. He said on June 4 that he is the only “absolute democrat” left in the world.

New Opportunities

Even so, multinationals are seeking new opportunities to tap Russia’s vast energy reserves and growing consumer market. The nation is in its ninth consecutive year of economic growth and the expansion has averaged more than 6.7 percent since 1999 because of record prices for Russian oil and gas.

Since Putin came to power on Dec. 31, 1999, Russia has paid off most of its foreign debt and its central bank reserves have swelled from $12 billion to $403.6 billion.

Russia has the world’s 10th largest economy, smaller than any of the other Group of Eight nations. Still, in 2006 its growth rate surpassed all other countries in the group and was almost two-and-a-half times the average 2.7 percent rate for the 13 nations that share the euro.

“Our economy was near the bottom of the list of world economies in terms of size,” Putin told reporters from G-8 nations on June 1. Now “in some areas it has even overtaken some of the other G-8 countries’ economies.”

Missile Shield

Putin will fly to St. Petersburg from Heiligendamm, Germany, where he’s attending the G-8 summit. At a meeting with President George W. Bush yesterday, the Russian president attempted to defuse the dispute over the plans for a U.S. missile shield in Poland and the Czech Republic. Putin proposed putting a radar site in Azerbaijan. Bush called it “an interesting suggestion” and said the U.S. and Russia will begin talks on the idea.

Russia wants the St. Petersburg forum to become a regular event on the global calendar like the World Economic Forum in Davos, Switzerland, Deputy Trade and Economic Development Minister Kirill Androsov said.

“Our ambition is for it to be an annual global platform to discuss problems of emerging markets,” Androsov told a news conference on June 5. About a dozen agreements are ready to be signed in the automotive, petrochemical, food and timber- processing and electronics industries, he said.

London Snubbed

In April, the Kremlin pulled the rug from under the feet of the rival Russian Economic Forum in London after Russian officials and business leaders including the head of the largest oil company, state-run OAO Rosneft, canceled their attendance at the last minute.

In St. Petersburg, the World Economic Forum’s chairman and founder, Klaus Schwab, will moderate at a roundtable attended by Putin and 100 chief executive officers of leading global firms. Delegates from 60 countries at the forum include U.S. Trade Representative Susan Schwab and EU Trade Commissioner Peter Mandelson.

PepsiCo Inc. and SABMiller Plc will build factories in Russia, Economy Minister German Gref said yesterday. Hyundai Motor Co., South Korea’s biggest automaker, will hold talks with Russian officials about building a $380 million plant there, Kommersant reported today, citing unidentified officials.

Executives are flying in from Goldman Sachs Group Inc., which along with Merrill Lynch has set up operations to trade stocks and bonds in Russia to take advantage of the booming securities market.

Reasserting Control

The risks can be high for foreign investors, especially in the strategic energy industry, where the Russian government has been reasserting national control. Van der Veer of Shell and BP Plc Chief Executive Tony Hayward, who will also be in St. Petersburg, know this well.

Shell last year had to cede control of its $22 billion Sakhalin-2 oil and gas project to OAO Gazprom after Russian regulators started to derail the project on environmental grounds.

Regulators are now threatening to revoke the license BP’s Russian unit holds for Kovytka, a deposit in Siberia with enough gas to meet Asian demand for five years. Gazprom, which enjoys a monopoly on Russian gas exports and is the world’s largest gas company, has been negotiating to join the project.

The St. Petersburg forum is a showcase for “Russia’s new power in global politics,” said Felix Howald, head of Europe and Central Asia at the World Economic Forum, in a telephone interview from Geneva. “This is definitely an event which business leaders who have a strategic interest in Russia have to be at.”

To contact the reporter on this story: Henry Meyer in Moscow at [email protected]

Last Updated: June 8, 2007 02:51 EDT  

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