- The Washington Times - Friday, July 21, 2006

HELSINKI, Finland. — About midway between Helsinki and St. Petersburg, at the head of the Gulf of Finland, lies a sleepy little Russian border city called Vyborg. It once belonged to Finland, but will soon become a gateway to the west for Russia’s boldest venture yet to become the energy colossus of Europe — a 1,200-mile gas pipeline to be laid on the bottom of the Baltic sea by the year 2010.

The pipeline is a deal between Russian energy monopoly, Gazprom, which has a 51 percent stake in the deal, and two German corporations who will split a minority interest.

You get to Vyborg by Finnish train, but you can’t get off — even to walk around and sniff the air during the 10-minute stop there.

A nice lake with a few fishermen and a shabby main street with shops and dreary apartments are visible from the train window. It looks poor, but this timber town and its sister oil pipeline terminus a few miles away, Primorsk, will be a bustling new hub of the oil and gas empire Russian President Vladimir Putin is building.

Mega-monopolistic international enterprises that Russia has begun to spawn, headed by Gazprom and Roseneft, are getting rich on high energy prices but could become a menace both to commerce and geopolitics, some fear.

Last week, Russian banks stayed open Sunday to use a capitalist invention — the initial public offering — to induce private investors around the world to buy shares in the Roseneft. Like Gazprom, Roseneft is a Russian state monopoly, though it permits private investment. Unlike Gazprom, Roseneft’s business is oil and it was created by assets seized from a privately owned company, Yukos, once Russia’s largest producer of crude oil.

The world’s investing class in effect turned its back on Yukos and its shareholders, who claim theft of their assets. The Roseneft IPO was one of the largest in history if not the largest.

Governments and oil companies sought to get in good with the Russians in a frenzy of buying. In some cases, Western oil companies, approached to buy shares, were afraid of offending Gazprom, Roseneft or both because of the large Siberian reserves they sit on. These two are becoming a powerful combination.

Russia already supplies 25 percent of Europe’s natural gas, a fact brought painfully home last winter when it cut off supplies briefly to Ukraine.

The new gas pipeline will go directly to Germany, avoiding any middlemen. That means fewer costs and complications, something monopolies love. But what troubles many Europeans is not the pipeline but the attitude accompanying it — that the price will be dictated, not negotiated. Also troubling is the everyone-for-himself attitude in Europe on energy and the lack of unity in the European Union.

Vice President Dick Cheney drew some shudders from the Russians when he charged in May that Russians were using energy to blackmail their customers. But he was only restating an old NATO doctrine that the Russians will be at NATO’s door turning off the gas in winter if Europeans don’t stick together. They never do.

What has changed is that the Russians are finally trying — and apparently finding — ways to break down resistance to its brand of state-controlled capitalism.

President Bush and Mr. Putin may have been temporarily unable to reach agreement on a bilateral trade treaty that would have put Russia in line to become a member of the World Trade Organization. But that is a trifling matter compared to the energy deals pulled off with the Kremlin monopolies.

According to the Financial Times of London, Gazprom will invite two or three Western major oil companies to participate in developing $20 billion in liquefied natural gas designated for the United States.

What Mr. Putin came away with from St. Petersburg was infinitely more important than WTO membership — the enormous prestige of hosting a conference despite outrage among many in the West at his backsliding on Russia’s commitment to democratic values. He also now has the backing of the modern multinational business world, which has rather blithely looked at his great statist corporations and pronounced them right as rain.

John Hall is the senior Washington correspondent of Media General News Service. Distributed by Scripps Howard News Service.

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