Merkel-Medvedev Meeting in Sochi Details Russian Takeovers in German Industries

German Chancellor Angela Merkel visited Russian President Dmitry Medvedev in Sochi on August 14 -their third bilateral meeting thus far this year- in an atmosphere of conviviality staged primarily for German television channels. The German electoral campaign and three major enterprise bankruptcies spurred Merkel’s decision to rush to Sochi.

These circumstances placed Merkel in the position of a "favor-seeker" (Frankfurter Allgemeine Zeitung, August 15). A political leader facing imminent parliamentary elections, striving to "save German jobs," under self-generated time pressure, courtesy of Russian state and oligarchic capital. These short-term considerations, however, are only adding impetus to an existing long-term strategy of linking the German economy to Russia.

Topping the bilateral agenda at the moment are Russian takeovers of the insolvent Opel automobile plants, Wadan shipyards, and Infineon-Qimonda semiconductor producers in Germany, as well as ambitious projects in the nuclear power industry and natural gas supplies.

The Wadan shipyards, in Wismar and Rostock-Warnemuende on the German Baltic coast, are now being offered to a Russian investors’ group close to the Kremlin. The German government takes the position that an investor connected with the Russian political leadership can guarantee Russian state orders for the shipyards.

As recently as 2008 the German government allowed an individual Russian investor (identified as Andrei Burlakov in the German and Russian media) to acquire the Wadan shipyards in unclear circumstances. Burlakov had promised to secure Russian state orders, but did not deliver by the time the crisis hit. The shipyards became insolvent despite their capacities for building liquefied natural gas (LNG) tanker ships, Arctic transport ships, and ice-breakers. Gazprom and the Russian merchant fleet lack such ships and are unable to build them. Russia needs those types of ships in order to break into the LNG trade (lest this become Western Europe’s answer to Russian pipeline dominance) and to compete for Arctic resources.

At the Sochi meeting, Medvedev and Merkel tentatively agreed on handing over the Wadan shipyards to a Russian group, represented by Igor Yusupov and his son Vitaly. The senior Yusupov, currently a member of Gazprom’s board, was a cabinet minister in 2001-2004 and later a special Russian representative for external economic relations and energy issues. He has been closely associated with both Medvedev and Vladimir Putin during their respective presidential, governmental, and Gazprom tenures. Yusupov junior is now the head of the Moscow office of Nord Stream, the Gazprom-led Russo-German project for a gas pipeline on the Baltic seabed. Thus, both are colleagues with Germany’s Social Democrat former chancellor Gerhard Schroeder in Gazprom’s employ in one way or another. The incumbent Christian-Democrat Chancellor’s chosen solution for Wadan reflects the bipartisan nature of Berlin’s new Ostpolitik.

According to Russian and German press reports, the Yusupov’s have pledged 40.5 million Euros upfront, ostensibly as private investors, for the Wadan shipyards. According to these reports the they are believed to represent a consortium that includes the Russian Vyborg shipyards -working largely on orders from Gazprom- and the construction and banking magnate Sergei Pugachov, who has been described as belonging to Putin’s inner circle and as the "Kremlin’s cashier" (Sunday Times, January 13, 2008; Handelsblatt, August 14).

At the Sochi meeting, Medvedev told the media that the proposed takeover of Wadan would be a purely "private" business. Nevertheless, Merkel held out the prospect of German government credits or guarantees to support this solution for the shipyards (DPA, Handelsblatt, Interfax, August 14; Vedomosti, August 15; Financial Times Deutschland, August 17).

Under such arrangements, Russian capital would acquire the Wadan shipyards at a fraction of their real value. The shipyards possess a highly trained workforce, modern machinery, and advanced patents, such as Russia could not hope to develop on its own any time soon. From the German government’s standpoint, however, guaranteeing Russian state orders through the investors’ links to the Kremlin is a decisive consideration in favor of this solution.

In Sochi, Merkel urged Medvedev to go ahead with the Nord Stream project as a priority, "even if South Stream is also being pursued" (Die Welt, August 15). Such remarks have been heard repeatedly from the German side, reflecting anxiety that South Stream might divert Russian resources of gas and investment capital away from Nord Stream. Such anxiety is gratuitous, however, inasmuch as South Stream remains an implausible project.

Also on the inter-governmental agenda is a proposed Russia-Germany joint energy agency. If created, such an agency could nip the European Union’s common energy policy in its fragile bud.