Publication: Prism Volume: 1 Issue: 24

A Senior Russian Official Charges That the West is Exploiting Russia’s Raw Materials

Professor Vladimir Pitersky, a Russian Security Council officerand Vice President of the Russian Academy of Natural Sciences,warns that in the next ten years, Russia might become an importerof raw materials. At his initiative, a secret brief on the subjectwas prepared and submitted to President Boris Yeltsin. The reportcharges that the West has launched a campaign to exploit and depleteRussia’ s natural resources. Alexander Zhilin, chief of the SecurityDepartment for Moskovskie novosti, interviewed Vladimir Piterskyabout this report.

Prism: Recently, the press has focused a lot ofattention on the fact that Russia is in danger of becoming a supplierof raw materials to the developed countries. But you insist thatthe danger is that Russia is getting short of raw materials…

Pitersky: Russia is very rich in mineral resources. However,the pace of geological prospecting efforts have dramatically decreased,which leads me to conclude that our country has been set backby nearly 50 years in this area. Our geological science, whichused to be one of the best in the world, has suffered a catastrophicdecline.

The government has nearly lost control of geological prospectingefforts in the country. Today it is impossible to pursue a coordinatedstate policy in the area of prospecting mineral resources andraw materials.

The combined effect of these factors is that the rate at whichnew mineral deposits are discovered today is many times less thanit used to be. For example, there has been a twelve-fold decreasein the rate at which new gold is discovered; for oil and nonferrousmetals, the rate has decreased five-fold. Therefore I can reassurethose politicians who are afraid that Russia is becoming "araw-materials appendage" of the developed countries. No,Russia has no chance to develop into such an adjunct for justone reason: our country’s known, economically viable, mineralreserves will be fully depleted within the next 10 years. Afterthat Russia will enter a period of an acute shortage of raw materials.

Prism: You mean Russia will have to import raw materials?

Pitersky: Russia cannot afford to import them. Such a shortageof raw materials would mean a nationwide catastrophe. After all,mineral resources account for nearly 95 percent of Russia’s energyproduction, 90 percent of heavy and defense industry output andsome 70 percent of exports today.

For many years now Russia’s economy has been based exclusivelyon its mineral resources. The mineral and raw material "shield"determines, to a considerable extent, our country’s economicpotential, as well as the development and placement of productionfacilities, the location of our work force, social stability,and sovereignty itself.

Prism: Frankly, I am not inclined to believe yourforecasts. Aluminum, other nonferrous metals and strategic rawmaterials are currently exported from Russia to the West in hugeamounts. The only controversy is the question of where the moneyreceived in payment for these riches goes, not the depletion ofthe resources….

Pitersky: Commenting on the barbaric exports of our rawmaterials you fail to see the most important thing. These hugeexports are themselves evidence that foreign entrepreneurs andcompanies are grossly exploiting Russian mineral and labor resourcesas well as our ecology. The fact is that strategic materials arebeing carted away from Russia in huge amounts while radioactivematerial and other kinds of toxic wastes are being brought in.Significantly, all these transactions are being kept secret fromthe population. The fact that the largest and strategically significantmetallurgical plants (specializing in steel, aluminum, gold, copper,platinum, titanium and uranium production) are now owned, as aresult of the privatization process, by foreign companies, isbeing held strictly secret.

Prism: Can you prove your conclusion by specificexamples?

Pitersky: The warehouses of Western countries are overfilledwith Siberian aluminum. The demands and prices for this metalare increasing and will increase. Hence, stockpiling of this metalis, in fact, a kind of profitable placement of capital, somethinglike depositing money in a reliable bank. Two thirds of the aluminumproduced in Russia is currently controlled by Cherny brothers(who are English citizens) and London businessman David Ruben.They own 68 percent of the Sayansk Aluminum Combine, more than50 percent of the Bratsk Aluminum Combine and 20 percent of theKrasnoyarsk and Novokuznetsk aluminum combines. In the meantime,the Russian banks have been aggressively buying up the sharesof the Russian aluminum enterprises acting on behalf of the "Trans-CIS-CommoditiesLtd." off-shore company. This company is registered in MonteCarlo and coordinates its activities with the British companyTrans Metals, which is the largest trader in Russian aluminum.

Here I have to remark that in the US, only the citizens of thecountry or companies set up according to American laws are entitledto acquire a plot of land to develop mineral resources on it.And here in Russia any foreign representative enjoys such a right.

Prism: Many enterprise directors complain today that theyhave no money to pay wages to their workers, that their enterprisesare going bankrupt. Do you think it is wrong when a foreign investorhelps breathe new life into a domestic plant and, therefore, helpsemployees of this plant to make a living?

Pitersky: The Trans-CIS-Commodities (TCC) company operatesunder so-called "tolling" conditions–that is, it operatestax-free. The Russian plants are used for processing foreign aluminum.But both the imported raw material, and the metal which is exported,are treated as the property of the foreign companies under thisarrangement. Thus the foreign companies avoid paying duties andvalue added tax. The TCC enjoys a 75 percent tolling regime (tax-freeagreement) with the Krasnoyarsk Aluminum Plant. The "tolling"of the Bratsk Aluminum Plant has been divided up between the TCC,Trans-Tec Company (owned by Mikhail Cherny) and the "Rosal"Russian-British joint venture. Incidentally, this group of firmsis also involved in non-ferrous metallurgy and is selling Russiansteel and cast iron.

Had these foreign companies paid taxes and duties, Russia wouldhave received some $170 million a year.

Prism: Wouldn’t you agree that if it is so obviousthat foreign companies deceive Russia that it means that our officialshave a financial interest in this?

Pitersky: Definitely. Somebody is making huge profits onthis and these profits, according to the plan underway, end upin foreign bank accounts. However, this is not the whole trouble:the "tolling" scheme ruins the domestic producers ofaluminum and consumers of the metal not only in Russia but inthe CIS states as well. Just one example to illustrate this foreigneconomic robbery: the Kazakh government has signed a deal withthe TCC to supply one million tons of aluminum to Siberia (tothe Achinsk and Krasnoyarsk aluminum plants). However, the TCCdid not purchase aluminum from the Kazakh Pavlodar plant, as itwas expected to do. Instead, the TCC began to send aluminum fromforeign countries. At first glance it seems unprofitable, becauseit is too expensive, but…The fact is that the activities ofthe TCC were directed at destroying the markets and business relationsof the aluminum producers of Russia, Kazakhstan and Ukraine.

Prism: Why?

Pitersky: The answer is simple. The aim of the TCC is tomake the aluminum producers in the former USSR dependent on foreignraw material suppliers. After this dependence is created, thesedomestic enterprises will not be in a position to object aboutthe financial terms imposed on them by the TCC, however unprofitablethey may be. Because the foreigner can respond by cutting offtheir raw material supplies. The latter would result in an aggravationof the social situation, a collapse of part of the country’s energysupply system, increase of electricity tariffs, etc. Who woulddare take a risk of facing such consequences?

I have similar examples about the production of copper, uranium,chromium and manganese. This situation supports the conclusionthat a number of the CIS states have already lost their sovereigntyover their mineral resources and ecology.

A "creeping" scheme is being organized to deprive Russiaand other CIS states of their mineral resources and raw materialbase. This scheme is as follows:

— the undermining of state-sponsorship of geological prospectingresearch;

— the promotion of the process changing strategically significantmining enterprises into corporations;

— the promotion of the establishing and preservation of a taxsystem that makes mining and ore-refining enterprisesunprofitable;

— the promotion of the system that allows foreigners to easilysuck capital out of Russia, including in the form of materializedlabor and energy, for example by using a system of duty freeexport and import of raw materials and products.

As long as we run these highly energy consuming and very ecologicallyharmful production processes, such as the manufacture of steel,aluminum and other nonferrous metals, we deplete the oxygen reserveof the atmosphere and add contamination, specifically in the formof heat, chemicals and dust. These production processes are costlyin other ways as well: there is the cost of toxic waste disposal,disposal of useless components of the ores, etc. This situationnegatively affects our genetic pool and the health of the population.

Prism: What measures do you propose?

Pitersky: Russia’s current crisis is connected with thegeopolitical position of our country. It is obvious that we needa new doctrine for Russia’s security in the area of natural resourcesbadly. We must abandon plans to privatize our geological prospectingand mining efforts and we must preserve the control of the statein the development of our mineral and raw material resources.We need to establish a program for developing our geological prospectingbranch of industry and a reliable mechanism for financing geologicalprospecting. A government department to take responsibility forgeology and the use and preservation of the country’s mineralresources must be re-established. This country’s stocks of economicminerals and raw materials are an essential part of the state’sstrategy of development and of our domestic and foreign policy.Therefore, this potential must not be thoughtlessly squandered….