RIA Novosti
May 3, 2007
Interview with Economy Minister German Gref (Part 3)
Question: Foreign carmakers are expanding on the Russian market at the expense of Russian ones. Despite that, the government seems determined to save AvtoVAZ. Do you believe that AvtoVAZ will be able to survive in the long run manufacturing fully Russian cars? Won't it have to assemble foreign cars?
Answer: The Russian car industry is developing quickly. Assembly of foreign models alone has attracted significant investment in the sector, over $2 billion in the first stage. I believe that it is important that well-known brands are bringing cutting-edge technologies with them.
Russia now has 12 car assembly projects. Agreements have been signed both with leading international carmakers and Russian producers: AvtoVAZ, Severstal Auto, Izh Auto, Toyota, Nissan, Volkswagen, General Motors, Ford, and GM-AvtoVAZ. Another six projects are planned. I would like to point out that these projects will set up a full-cycle assembly line that assembles, welds and paints cars; they will also produce car parts in Russia.
AvtoVAZ now has equal access to all these mechanisms of state support. It uses them both independently and in its joint venture, GM-AvtoVAZ, which, combined with the use of imported parts, will help to improve the competitiveness of its cars. AvtoVAZ is a commercial organization. It follows market rules and determines the major directions of its development independently, including decisions on its car models. Hundreds of thousands of Russian cars are produced at its plant alongside foreign models. The demand for them is still high.
Q.: Can we speak of financial and legal guarantees for foreigners willing to invest in Russia after the Russian government has taken steps to drive foreign investors out of the Sakhalin projects?
A.: The reason for the Sakhalin campaign is well known. The constant rise in the project's cost was indefinitely delaying the time when Russia was supposed to start getting profits. Even the project's Western participants agreed with that. After all, any transaction should offer bilateral guarantees. The project in question, Sakhalin II, saw constant budget overruns, which kept postponing the collection of budget revenues; and the foreigners failed to comply with the key clauses of the agreement. But the project's fate was finally sealed by numerous violations of environmental laws. They caused the biggest concern in Moscow and among the island's population.
Of course, the Russian oil and gas sector needs more direct investment, including from abroad. There are many large and capital-intensive projects, and Russian companies do not have enough funds to carry out all of them independently. Yet it should be remembered that the energy sector, notably, the development of bigger fields and pipelines, is considered strategic, so foreign investors' access will be limited.
The government wants Russian energy companies to retain controlling stakes in such projects. But it will work out clear, understandable and stable rules for foreign investors to become partners in these projects. Circumstances have changed and the Russian government's requirements have gotten tougher. Not everyone likes it, of course, but serious Western companies are learning to live by the new rules.
Things change, and the rules of the game for foreign capital in Russia are being improved accordingly. What suited us earlier is now absolutely unacceptable, such as foreign companies' participation in projects under product-sharing agreements, which seemed the only possibility in the mid-1990s. I am certain that this country no longer needs PSAs.
Q.: Insufficient investment in the Russian economy might be caused by the business community's lack of confidence in the government. What is it doing to restore this confidence?
A.: Last year, Russia saw a record amount of domestic investment. So talking about the Russian business elite's lack of confidence in the authorities is somewhat far-fetched. On the contrary, many now say that Russian businesses are getting better adjusted to the present conditions and the government's requirements. We now hear each other better, and as a result, private businesses are becoming more open.
Also, Russian companies are becoming quite competitive compared with foreign firms. They can already undertake and carry out grand projects in the energy and other strategic sectors on their own. Naturally, the authorities assist them. This is how the Shtokman project in the Barents Sea should be viewed. Russia is positive that Gazprom can develop it independently without outside help. But that does not mean that we do not need partnership with Western companies or foreign investment.
Q.: What is delaying Russia's entry to the WTO [World Trade Organization]? Why is it still easy to find pirated films and software in the center of Moscow? Can Russia join the WTO before the end of 2007?
A.: It is crucial for us to join the WTO in 2007 so that we enter the next political cycle as a WTO member. Many figures in Russia's three-year budget are based on the assumption that from 2008 Russia will be in the organization. We want to join the WTO, but not at any price. Russia is now in proactive multilateral talks with the European Union and the United States. I hope that all the unsettled issues will be resolved within the next few months.
We have calculated the budget's losses from reducing the existing import tariffs after WTO accession. The average weighted customs tariff rate will be 11% in 2008, 10.3% in 2009 and 9.9% in 2010. The present rate is 11.7%; the tariff for agricultural products is 18.6% and for industrial products 10%. This means that we will lose 40 billion rubles in 2008, 70 billion in 2009 and 100 billion in 2010. However, I cannot say that there will only be direct losses, because we will benefit from an increase in trade turnover. But it is impossible to say how big it will be. So we are now calculating only direct losses.
Indeed, our future partners in the WTO are very concerned about the protection of intellectual property rights and the fight against piracy. Although we have done a lot and have achieved some progress, even more will have to be done within the next one or two years. We cannot move forward without resolving this problem. Unfortunately, this, along with the arbitrary legal system and insufficient protection of property rights for both small businesses and large corporations, is one of the problems that still need to be dealt with. We intend to finally resolve them after accession to the WTO.