Resolving Sistema issue will unlock India-Russia partnership

Last Updated: Sun, Jul 29, 2012 19:10 hrs

The India-Russia story is spiralling downwards, with Russia conditioning the future relationship on a resolution of the Sistema telecom issue and India still unable or unwilling to take a political decision to resolve it.

The story so far: Russian Deputy Prime Minister Dmitry Rogozin told Prime Minister Manmohan Singh during his visit to Delhi 10 days ago that Russia would not be able to favourably look at any Indian proposals for investment in Russia’s strategic resources, including in the oil or gold sectors, unless Delhi was able to satisfactorily resolve the Sistema telecom problem.

Keenly aware that the chief of Sistema, Vladimir Yevtushenkov, is a very close friend of Russian President Vladmir Putin, Singh responded by saying that although the matter was sub judice, Delhi would do everything in its capacity to not let this matter become a festering sore in the relationship.

Clearly, both sides don’t want to let the matter escalate much further as they realise there is too much at stake. On the one hand there is the bilateral defence relationship, with Russia committing itself to handing over the refurbished aircraft carrier, the Admiral Gorshkov, now renamed INS Vikramaditya, to India by December. Meanwhile, Sergey Kiriyenko, the head of Russia’s nuclear agency, also reassured the prime minister that Russia is keen to fulfil its commitment of setting up additional civil nuclear power plants in India.

In fact, the day before Rogozin arrived in India to co-chair the bilateral Inter-Governmental Commission (along with External Affairs Minister S M Krishna), officials from the Nuclear Power Corporation of India were in Moscow to sign a documents committing a $3.5-billion Russian loan to build the third and fourth civil nuclear power plants, of 1,000 MW each, at the Kudamkulam site in Tamil Nadu.

The first unit at Kudamkulam should have come onstream in December 2011, but has been held up because of protests at the site. It is now expected to do so in August 2011.

With the much-vaunted India-US nuclear cooperation not materialising so far because of other, third-country complications, Russia’s commitment is reassuring, said officials. The prime minister also promised Rogozin that India would find an alternative site to Haripur in West Bengal for additional Russian-funded and built nuclear plants.

That is why the resolution of the Sistema issue, in which Yevtushenkov has allegedly invested $3.1 billion, for just over 75 per cent of the shares in a joint venture with Shyam Telecom, requires urgent resolution. The Supreme Court ordered that all 122 licences (including Sistema Shyam Teleservices) be cancelled on allegations of bribery and corruption in the allocation of 2G spectrum.

Meanwhile, Russia continues to sell China its energy resources with considerably alacrity. Rosneft, the Russian state-owned oil producer, has agreed to supply China National Petroleum Corporation 15 million tonnes of crude oil a year through the new East Siberia-Pacific Ocean pipeline. With oil prices stabilising at $100 a barrel, Rosneft believes it will earn around $130 billion.

The growing intensity of the Russia-China relationship, in which China is leveraging its economic growth as well as its manpower, especially in the Pacific east, to at least partially fund Russia’s own economic growth, is beginning to cause ripples of concern in Delhi.

China’s relentless rise and the systematic way in which it has bought stakes in the US, European and Russian economies holds lessons for India. Officials point out mournfully, however, that the India-Russia trade is still extremely low, less than $10 billion annually, and even this is dominated by defence and PSU initiatives.

In contrast, Russia-China trade was pegged at $83.5 billion last year and Putin, visiting China in June, promised Hu Jintao it will touch $200 billion by 2020. Trade analysts say half the trade is made up of Russian oil and natural resources, which China uses to manufacture medium-value goods, such as machinery and electronic products, which it sells back to Russia.

Can India take a leaf out of the Russia-China trade book? Certainly, Delhi remains extremely keen to pursue strategic investments in Russia, but Sistema blocks the way. That matter is now high up on the Kremlin agenda and the government must persuade the Telecom Regulatory Authority of India to see the light.

Is this blackmail? That would be a one-dimensional way of looking at strategic interest. Until India can diversify its sources in defence, high-technology and energy, Russia remains a key partner. Whether it is the engine that propels its “Arihant” nuclear submarine or civil nuclear plants at Kudankulam, the Russian partnership remains singular.

As for Sistema, it is also in Delhi’s interest to resolve this as soon as possible. After all, part of the money used to service the $12-billion rupee-rouble debt has been funnelled back into this enterprise.

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