Russia gets cosy with former Cold War ally

Although Russia’s image on the world stage is one of a strong independent country, in these days of globalization even the Great Bear is not immune to the continued global financial crisis.

According to VTB bank’s GDP indicator, January saw Russia’s economy contract at its fastest pace since February 1999, when it was coping with the aftermath of the 1998 financial crisis.

It has been reported that the country’s electricity consumption in January dropped 7.7 per cent, compared to a year ago. In response, power producers are said to have lowered their output by 7.3 per cent. A well-recognized general indicator of a country’s economic health is its power consumption.

Before the onset of the financial crisis, former state electricity monopoly Unified Energy System (UES) had predicted a growth of 4-5 per cent every year through to 2011. All of Russia’s electricity producers, formerly subsidiaries of UES, had drafted their expansion plans based on this growth forecast. It is now anticipated that these companies will revise their growth plans.

Thus it is not surprising that Russia is looking at cultivating, and in some cases reactivating, foreign trade relations. If recent activities are any indication, Latin America is proving a prime target.

At the end of last month, Cuban leader Raul Castro had a week-long official visit to Moscow, which followed a meeting between Russian president, Dmitry Medvedev and Castro in Havana back in November. The visit was heralded as a historic event, as Raul Castro is the first Cuban leader to visit Moscow since the collapse of the Soviet Union in 1991, whereupon relations between the two former Cold War allies cooled.

Over the course of the visit, a host of agreements à‚— some 30 documents in total à‚— were signed as part of an effort to revive ties and improve economic cooperation. One of the agreements was to grant the Caribbean state a $20 million loan, with part of that loan to be used to purchase Russian-made power generating equipment. At the same time, Russian energy company Inter RAO and Cuba’s state-run utillity Union Electrica agreed to set up a joint venture to implement thermal and hydropower generation projects.

The joint venture’s pilot project looks set to be the upgrade and extension of the existing facilities of the 600 MW Màƒ¡ximo Gàƒ³mez combined heat and power plant.

The parties identified other promising areas for the joint venture to focus on, such as the implementation of investment projects to engineer small hydropower plants, supplies of power generation equipment to Cuba and the development of its grid infrastructure.

Such agreements will clearly benefit both countries, but for Cuba in particular they are good news. Primarily due to lack of investment in its Soviet-era installed capacity it currently suffers from frequent blackouts and brownouts for extended periods of time.

Russia is also cultivating relations elsewhere in the region. Vladimir Putin, Russia prime minister, recently approved a draft agreement with Venezuela to jointly establish a bank to finance bilateral projects, including energy projects. The bank would provide services to corporate clients, primarily those involved the power industries and in oil and gas production in Russia and Venezuela.

Later this month, Bolivian president Evo Morales is due to visit Moscow to sign agreements on investment and cooperation in the energy sector, with particular emphasis on the exploration and production of natural gas. Bolivia has the second largest natural gas reserves in Latin America.

With the new man in the White House, relations between the USA, Cuba and Venezuela could thaw. Is it possible that Russia’s recent activity in the region, and in those two countries in particular, is a case of being ahead of the game?

Kind regards,
Heather Johnstone
Senior Editor

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