UNITED STATES COMMISSION ON SECURITY AND COOPERATION IN EUROPE
(HELSINKI
COMMISSION) HOLDS HEARING:
"ENERGY AND DEMOCRACY: OIL AND WATER?"
JULY
23, 2007
COMMISSIONERS:
REP. ALCEE L. HASTINGS, D-FLA.,
CHAIRMAN
REP. LOUISE M. SLAUGHTER, D-N.Y.
REP. MIKE MCINTYRE, D-N.C.
REP. HILDA L. SOLIS, D-CALIF.
REP. G.K. BUTTERFIELD, D-N.C.
REP.
CHRISTOPHER H. SMITH, R-N.J.
REP. ROBERT B. ADERHOLT, R-ALA.
REP. MIKE
PENCE, R-IND.
REP. JOSEPH R. PITTS, R-PENN.
SEN. BENJAMIN L. CARDIN,
D-MD., CO-CHAIRMAN
SEN. CHRISTOPHER J. DODD, D-CONN.
SEN. RUSSELL D.
FEINGOLD, D-WIS.
SEN. HILLARY RODHAM CLINTON, D-N.Y.
SEN. JOHN F. KERRY,
D-MASS.
SEN. SAM BROWNBACK, R-KAN.
SEN. GORDON H. SMITH, R-ORE.
SEN.
SAXBY CHAMBLISS, R-GA.
SEN. RICHARD BURR, R-N.C.
WITNESSES/PANELISTS:
MR. SIMON TAYLOR,
DIRECTOR,
GLOBAL WITNESS
MR. ROMAN KUPCHINSKY,
REGIONAL ANALYST
RADIO FREE EUROPE/RADIO LIBERTY
The briefing was held
at 3:00 p.m. in Room 419 Dirksen Senate Office Building, Washington, D.C., Alcee
L. Hastings, Chairman, U.S. Helsinki Commission, moderating.
[*]
HASTINGS:
This hearing series is designed to give the commission a comprehensive picture
of this complex issue and highlight areas where the commission, the U.S.
government and the OSCE can take effective action.
The first hearing took
place on June 25 and focused on conflict prevention and the security of supply
and transit of oil and gas. The third hearing will address the nexus of energy
security and environmental security, focusing on the diversification of energy
supply and sustainable technologies, namely, how we can decrease dependence on
foreign sources and address environmental concerns at the same time.
At
today's hearing, we are going to hear from our distinguished panelists about the
development of democracy and civil society in countries with abundant energy
resources and why that matters to U.S. energy security.
I mentioned at the
last hearing the remarkable fact that only two of the world's top ten oil
exporters are established democracies -- Norway and Mexico. Something seems to
be a bit wrong with this picture. But when we look at countries that are
situated on oil and natural gas reserves, we think these are countries that won
the global version of the economic lottery.
They've built a built-in revenue
stream that can fuel not only their own economy, but also be an export
commodity. But what economists have found by studying these resource-rich
countries is that they often do worse or as poor as resource poor neighbors,
both economically and politically.
This problem is sometimes referred to as
the resource curse.
Each of the countries we are focusing on today --
Russia, Kazakhstan, Turkmenistan, Uzbekistan and Azerbaijan -- face some aspect
of this resource curse and while the situation in each country is unique, we can
generalize and say that the lack of transparency in politics and in oil/gas
deals is at the root of the problem.
It's a well known and well bemoaned
fact that the United States is becoming more and more reliant on imported oil to
fuel our economy. We are the world's largest consumer of oil. We account for
an astonishing 25 percent of global daily demand, despite having less than three
percent of the world's proven reserves, and we source that oil from some
unstable sometimes and unfriendly sometimes places in the world, such as Nigeria
and Venezuela.
In the context of today's hearing, some of you may wonder why
the United States should care what's happening in Turkmenistan or Kazakhstan,
when we actually don't rely on these countries for a significant portion of our
energy supplies.
Russia is only number nine on our list of oil suppliers and
Kazakhstan and Turkmenistan, Uzbekistan and Azerbaijan don't even make it into
the top 20.
The answer is that unlike natural gas, oil is a commodity. So
regardless of where we source our oil, what happens in other oil-rich countries
impacts the stability of our price and our supply, as well.
As the National
Petroleum Council reported last week, and I particularly think this is a
poignant quote, "There can be no U.S. energy security without global energy
security." Oil is the tie that binds us all and threatens to choke us at the
same time.
So take a minute to think about how drastically different our
interactions with these countries would be if we did not rely so heavily on
these countries' resources. I think it goes without saying that we could have
more leverage to promote democracy and civil society.
Clearly, oil
constrains, if not drives portions of our foreign policy. So while it is
imperative that we work to limit our dependence on foreign oil and change the
dynamic of supply and demand, it is just as important to create more stable and
reliable sources of energy.
One of the key ways the international community
has sought to counteract the political and economic instability inherent in the
resource curse is through programs that seek to instill transparency and
accountability into the resource payment system.
I'm very pleased that we
have with us today Mr. Simon Taylor, one of the founders of and now the director
of Global Witness, an organization that has led the charge in not only exposing
corruption and kleptocracy, but also finding workable solutions to these
problems.
Also joining us today is Mr. Roman Kupchinsky, regional analyst
for "Radio Free Europe" and "Radio Liberty."
Senator, I don't know whether I
had a chance to discuss this with you, but in an effort to be creative, and I
said to Mr. Taylor earlier, from my perspective, sometimes hearings on Capitol
Hill are sterile and in an effort to infuse them with a bit more enthusiasm,
today, for the very first time, we are inviting our audience members to submit
questions.
We'd like to take advantage of the expertise we have here. So
please hand your questions to our staff and if we have time, and I suspect we
will today, we will ask our panelists if they will indulge us and answer some of
them.
The point that I'm making is I decried the fact that we sit and very
occasionally in the audience are a substantial number of people who have a
wealth of information that come in, listen to the hearing and go out and we
don't benefit from it. So I'm trying to at least reach out in that regard.
You should all have copies of the full biographical information of our
distinguished witnesses. So before I turn to Mr. Taylor for his testimony, I
would like to recognize my good friend and co-chairman, the distinguished
Senator from Maryland, and ask for any opening remarks you may make, Senator
Cardin.
CARDIN: Well, first of all, Mr. Chairman, thank you very much for
making this a priority of the Helsinki Commission, energy security, and I thank
you for convening this hearing and I appreciate both the witnesses that are with
us today.
Audience participation -- that sounds a little bit like what the
presidential debates are trying to -- so maybe next we'll do it by web. But I
think it's important that we focus on the subject of energy security and I
appreciate it very much.
We just came back from the Ukraine. Our
parliamentary assembly meeting had its annual meeting in the Ukraine, which, of
course, the issues in that part of Europe, energy is a critical issue and the
relationship among the OSCE states.
We had a chance to go up to Chernobyl
and see firsthand the problems of a nuclear facility that was built
inappropriately and what that accident has caused.
So every opportunity we
get, Mr. Chairman, we try to advance our understanding and appreciation of the
challenges facing us globally on reaching energy independence. We know how
important it is to our economy. We know how important it is to our security.
We know how important it is to our environment. And I think the OSCE states
have a particular opportunity to be the leaders in the world on moving forward
with energy independence and energy security.
I'm going to ask permission to
put my full statement in the record.
HASTINGS: Without objection.
CARDIN: And let me just make a couple preliminary comments. It is extremely
troublesome when you look at the oil-rich, energy-rich states and see so many of
them are autocratic and non-democratic and have serious issues of transparency
and corruption, because you know that it's not a reliable source of energy if
the country cannot develop the type of economy, the type of social institutions
and governmental institutions that promote the development of its country.
And just according to Transparency International, six of the top ten oil
exporting countries to the United States are among the most corrupt countries in
the world. So it is affecting the energy supply right here in the United
States.
Another troubling part is that, to many respects, these states are
resource-rich and, yet, their people are living in poverty. So when you have a
corrupt government and you may have resources, those resources don't get fairly
distributed and the people of their own country don't benefit from the wealth of
their own state.
So there's many reasons why I think we should be concerned
about the relationship between having energy resources and the type of
government that is in place in these countries.
We have been working very
hard, the U.S. Helsinki Commission, to raise the issue of transparency, to raise
the issue of fighting corruption. At the OSCE parliamentary assembly meeting a
year ago, I authored a resolution on behalf of the U.S. delegation urging
parliamentarians to look at the issues of immunity, because immunity is being
imposed to block corruption investigations in many of the states in the OSCE,
and that's wrong. We've got to do something about that.
So this is an
important issue. I was looking at the Transparency International, which rates
the countries. I didn't know you did that until I read this information for
this hearing. You rate the countries as far as how corrupt they are, one to
163.
It's good to be a low number, not a high number. And one country which
is a high number is trying to do something about it. Azerbaijan, which is tied
for 130th place, which is nothing to brag about, but it's implemented the EITI
recommendations in 2003 and, since that time, the country has experienced an
increase in GDP, growth in foreign direct investment, and has the world's 12th
most improved business environment score.
So you can see that when you make
progress to improve, it helps the country itself.
Now, some of the other
countries, such as Russia is tied for 121st place and they're not making much
improvement. Kazakhstan is tied for 111th place. Turkmenistan is in 142nd
place and Uzbekistan is in 151st place. And I think that's part of the problem
and, yes, it does affect the United States, because it affects our ability to
have reliable energy policies, on which we want to help lead for energy
independence in the United States, as well as energy independence in the entire
OSCE region, so that we can, in fact, control our own destiny.
So for all
these reasons, I'm very pleased that our two witnesses are here today to try to
help us sort this out and see what policies we can advance in OSCE to help our
region be responsible states and regions to advance energy security for the
world.
HASTINGS: Thank you very much, Senator.
Just for purposes of the
record, when the Senator referred to EITI, that's the Extractive Industries
Transparency Initiative.
Mr. Taylor?
As I indicated, ladies and
gentlemen, the biography of Mr. Taylor is available for all of you. But just as
a reminder, he is one of the three founders and directors of Global Witness.
And I'll leave you to your testimony at this time, Mr. Taylor. Thank you for
being with us.
TAYLOR: I suppose I should start by thanking you also for
having us. I think it's a great privilege to be here and I hope I can make a
few concise and succinct points that would add to the presentation that we've
submitted, and, at the same time, I'd like to pick up on some of the points that
you have both referred to just now.
Just a brief thing about us. Global
Witness was the -- how should I put it -- the conceiver and one of the
co-founders of the Publish What You Pay Coalition back in 2002 and the Publish
What You Pay Coalition is really Pan-global, 380-plus organizations, civil
society organizations, a community, if you like, representing basically
everywhere in the world, I think, today.
And it was the launch of the
Publish What You Pay call, if you like, which led to the U.K. government
launching this thing called EITI, or the Extractive Industry Transparency
Initiative.
Now, the Brits may have launched that, but it's now really a
much bigger thing. The United States is now properly engaged, although we have
some concerns about things that could be enhanced, which is something I'll come
back to.
EITI, though, has lots of good points and it has some points that
are less good. So there are issues around areas that we have some concern about
which could be addressed through additional measures. I'll come back to those,
as well.
But, essentially, through EITI, we have governments at the table,
we have both producer and consumer governments. We've got companies at the
table. Pretty much all the key oil, gas and mining companies are now at the
table. And we have civil society, including representation through the Publish
What You Pay Coalition and beyond.
And there are two issues we're really
looking at here. One is energy security from the consumer side. Obviously, you
can't plan economies and move things forward and have a functioning economy
without security of supply of energy. But simultaneously, from the producer
side, I think you can't have a functioning society without accountability, and
I'm talking here about accountability over the stewardship of the revenues
derived from a state's assets.
And in a lot of the countries we are looking
at, we're talking a vast percentage of the state income in relatively
non-diversified economies comes from oil and gas, and mining, of course, is
another issue.
And so it really depends which side of the fence you sit on.
If you're on the consumer side, you're worried about getting your ready
supplies. If you're living in a place like Equatorial Guinea or Kazakhstan or
Uzbekistan, perhaps slightly different there, production of oil is less in some
of these other states, or in Angola, you're interested in accountability over
the management of those revenues. And that's really where we hope EITI will
deliver.
And I'd like to just sort of refer to some of the key points that
we were making. Senator Cardin was saying that -- he mentioned the Transparency
International Comment about six of the top ten sources of U.S. supplies are in
the bottom third of the world's most corrupt countries.
I think that's quite
a salient point. Kazakhstan, in the area we're talking about here,
Turkmenistan, Uzbekistan rank right on the bottom, in the bottom section.
There are a number of other issues we've come across looking at the region we
are concerned about in the hearing today. For example, gas supplies from
Turkmenistan, I don't know the extent to which members of the commission have
gone through our report from a couple of years ago looking at these very strange
corporate structures that were established to govern -- "govern" is the wrong
choice of words here -- but to manage gas reserves coming out of Turkmenistan
and through Ukraine.
They have really no founding rationale for being there.
There's all sorts of very strange corporate structures. There doesn't seem to
be much of a purpose and they are not at all transparent.
If you look at
Turkmenistan, a vast percentage of the state's income was stashed in accounts in
Frankfurt, essentially managed by the president, before he died, and the money
is still there. There's been no real kind of progress on why this money was
sitting there. Nobody knew how much was there. There was no oversight and
control.
So this is an issue that isn't just about the production of oil
and gas. It's also about the management of banking, how banking is another
function that allows assets to be diverted overseas. We need to address these
things, as well. That's not going to be addressed through the EITI process, but
we, as an organization, are now thinking about some of these issues.
And I
mentioned Ukraine and I mentioned Turkmenistan in Europe and I think one of you
made the comment about global energy security is something, of course, which is
of interest to the United States, because there's a sort of fungibility to this.
But if you look at gas coming through to Western Europe from Russia, about 80
or 90 percent of it comes through Ukraine, which didn't work too well a couple
of years ago when the tap was turned off.
So I think you've just been, you
said, to Ukraine. So you've seen firsthand what the implication of that was.
So needless to say, it's created a real sense of panic, I think, in Europe as to
how can anyone rely on anything.
And I think, to some extent, that has
increased the political interest in EITI, for example, as a structure, but we
have to get EITI right and we have to get it functioning.
And perhaps I
should just briefly mention some of the key areas that we think there needs to
be some other work done. We think it would be useful to have a reporting
requirement on transparency created. To some extent, that's what we were
calling for through the launch of the Publish What You Pay campaign, although,
at the time when we launched it, we were focusing on the mechanism of listing
authorities requiring companies listed, and there are good things about that and
there are things missing in terms of what you could achieve.
We think we
need something more comprehensive than just that. And so one of the things we
are looking for is to see later on this year some work on Capitol Hill, we hope,
to address this problem, to look at it more comprehensively, to see whether we
can get companies that are associated in the U.S. either registered in the U.S.
or listed in the U.S. or simply required to disclose the revenues they pay in
each country.
And the reason that this would be useful is, in part, I think
it illustrates where some of the weak points are in the EITI process. In EITI,
we are relying on governments to voluntarily come to the table and at the point
when they voluntarily come to the table and say, "Yes, we will perform," then
there's the matter of whether, in fact, they do perform and, at the point when
they do perform, then the companies that are located in that country will have
to disclose the revenues they pay.
So there's a kind of an arrangement that
will come together as a consequence of performance.
The problem with that
is, though, if you're a kleptocratic president or member of the kleptocratic
elite, why on earth would you come forward and volunteer to have yourself held
accountable? And this is a problem we face with countries like Equatorial
Guinea, like Kazakhstan, like Angola, and so on and so forth.
So where we're
at with EITI right now is we have, as was mentioned before, Azerbaijan is
performing. We have also Nigeria performing. But really we don't have anybody
else really delivering at the moment. And so we need to have a drive to help
ensure, both diplomatic outreach-wise and funding and supporting the EITI
structure to make that function and make it work.
We need to see the U.S.
use the leverage it's got to bring countries to the table and deliver, because
otherwise they sit on a list and they're going to get to the stage where, when
we get to verification in September, which is the next big issue on the agenda
for EITI, that if verification functions properly, they will be kicked off and
when they get kicked off, it's going to be very politically embarrassing.
So
we need to keep them in, but we need to keep them in and the cost of keeping
them in is performance. So these are very difficult issues, but ones where we
need help basically from Capitol Hill, from the administration, to make it
happen in a way that we haven't seen so far.
So that's one side. The actual
reporting requirement, we are never going to get some countries to the table, I
think we have to face that, not in the immediate future anyway and short of
regime change or some enlightenment happening, I can't see it happening in some
countries, in which case these are very often the countries for which the whole
purpose of doing this was the biggest call in the first place.
So do we
accept EITI and its limitations or do we go as far as we can with EITI and think
of alternatives and additional mechanisms to help bring about transparency by
default, if you like, and, at the same time, by protecting the companies that
are working in these jurisdictions by simply requiring their disclosure.
And I think if we get to the stage where that happens, then we'll improve things
quite a lot.
So I referred to a reporting requirement. We need to see
progress on that. We can talk to people further about that.
EITI is
something I've mentioned, as well.
We need to see budgetary transparency.
I think from the producer government or a producer country side, this is another
area. It's all very well seeing transparency in the revenue steams coming in
like we've seen now in Nigeria, but it's the next stages down where very often
the money disappears.
How do you know then what happens to it? So it's the
status between central governments and where it gets disbursed and how it's
getting disbursed and whether, in fact, transferences of funds actually do
equate to the budgets and any kind of reality. I think those are very important
things. So we need to see some progress on that side, as well.
And I think
the real cornerstone of all of this is the capacity of civil society to function
in this kind of environment and I was struck by the Freedom House submission
which I saw. And on the one hand, from the Publish What You Pay/EITI side, we
see progress in delivery from Azerbaijan and, yet, what I read in the Freedom
House statement, I'm not an Azerbaijan expert, but I see a retraction, if you
like, a retrenchment of -- what's the right term -- a real backlash, if you
like, against freedom of the press and so on and so forth.
I personally feel
that that's an inconsistency. You cannot have civil society able to hold
government accountable for the deployment of state resources and have the press
completely close down. It just doesn't work.
And so although we may be
saying, from an accountant's point of view, "Here's the figure on the table,
well done, Azerbaijan," if they are beating up civil society, then come the
verification process, civil society is going to be -- I'm talking about the
whole global network here -- is basically going to be calling on verification
processes to come into play.
And that really means that Azerbaijan needs to
come off the list of properly performing and be considered in some kind of -- I
don't know, what's the right term? They need to be put in the doghouse until
they stop beating up on civil society, and I include the press in that regard,
because the whole point of this is to create not just the vase that sits
collecting dust on the shelf, that we need to create a mechanism whereby that
vase was then deployed so that we create the accountability.
So the
transparency is an essential precursor. It's one small bit. We have to have
it, but without the rest, it's, frankly, meaningless. It's like having an
election and then winning 99 percent of the vote and nobody's able to ask why.
Then someone stands up and says, "Yes, they held an election." Well, do we give
that credibility? I think we have to question those things.
So these are
the sort of key areas that we are looking at at the moment and we would like to
talk to you more about the sort of frameworks around which we could see
enhancement of delivery from EITI, but also about this more comprehensive
requirement to enable companies to disclose. So we'd really like to look at
that.
If you wouldn't mind, indulge me for one second. I'd just like to
chart one last thing that didn't appear in the submission and just refer people
to a paper that we copied and left outside.
I'm not the author of that
paper. I have nothing to do with its production. But it's an author who's an
editor of a journal called "The Petroleum Review," who is a quite respectable
author in his field.
And it's to do with something that was referred to by
the chief economist of the International Energy Agency, Dr. Fatih Birol, a
couple of weeks. It appeared, I think, in the "Financial Times." And it's
reference to -- well, they kind of wobbled -- reference to the sustainability of
oil and gas production, principally oil at this stage, sometimes referred to as
this whole issue of peaking of gas and oil production, gas, of course, coming
later.
But there are credible commentators on the stage with a lot of
experience coming at this not from the economist's perspective, which seems to
be more about raise the price, OK, it becomes more sustainable to put more money
and investment and magically wave the wand and out comes more oil.
But there
are issues of physics, chemistry and geology around the structure of oilfields
and we have got to that stage, it would seem to me. And certainly where this
guy is coming from is he's provided a piece-by-piece survey of every single
project down to 40,000 barrels a day, which is peanuts. We're consuming 85
million a day globally now. So 40,000 is nothing. All the ones in the pipeline
for the next ten years, something like that.
And the point we're supplying
to (inaudible) crosses is roughly around 2010, 2011. So we're right around the
corner at the point where increase is going to cross depletion. And when we get
to that stage, then we're going to go right through $100 a barrel, we're going
to go through $150 a barrel. Who knows where we go to, but we're going to go
up, and that has massive implications, I would say, for political
decision-making, for panic, for economic security, for a whole raft of things.
I don't need to go into those here, but the implications are very serious.
So I guess what I'm saying is if we are serious about security of supply, it
kind of adds weight, I think, very seriously to what I think you were saying at
the beginning in terms of diversification of energy supplies. And depending on
who you talk to, but the transition into an alternative energy economy is not a
five-minute affair. It's 10-20 years and we'd better start sticking money in a
polo program style with the leadership behind that and we'd better start doing
it -- basically, my message is we'd better start doing it now.
So half of my
message is let's try and create the accountability mechanisms to deliver benefit
out of these revenue streams, because these will hugely benefit the populations
in those countries. Let's create the accountability and enable people to have a
voice in these countries, to hold their governments accountable at the same
time, because I think we can do it.
There are mechanisms we've started to
create which we can use to do this, but we all have to pull it the same way.
That should help in the meantime what we can with the energy security, as best
as we can, because more stable places have got to be better than unstable ones.
But we can't forget that, because that's going to stomp all over us and it's
going to create all sorts of problems.
Maybe he's wrong. Maybe he's out
five years, but I don't think so and I don't think much more than that.
So
thank you.
HASTINGS: Thank you very much, Mr. Taylor. Your full statement
will be included in the record.
And without mentioning the author's name,
has that been made available for publication?
TAYLOR: This was published in
February this year. It's a public document.
HASTINGS: All right. So do we
have copies?
TAYLOR: Yes, and I can send you an e-mail version, if you
like.
HASTINGS: But do we have copies here today.
TAYLOR: Twenty
copies we left outside.
HASTINGS: Thank you very much. I just wanted to
make sure that I had it.
TAYLOR: I can give it to you. I can give it to
you after.
HASTINGS: I'm worried about $12 a gallon for my gasoline.
TAYLOR: It'll be paying real soon.
HASTINGS: Mr. Kupchinsky, you heard
Senator Cardin mention that he and I and others were in Ukraine recently and I
note from your bio that you spent a rather considerable portion of your career
in Ukraine. But, of course, today, as regional analyst for "Radio Free Europe"
and "Radio Liberty," we are honored to have you here with us and we invite you
to submit your full statement in the record and go forward in any manner you see
fit.
Thank you.
KUPCHINSKY: Thank you, Mr. Chairman. Thank you for
inviting me to this hearing.
For the first time in the history of the United
States, the U.S. is on the verge of becoming partially dependent upon natural
gas from Russia. Currently, the traditional supplier of natural gas to the U.S.
market is running out of exportable gas, that is, Mexico.
In the near
future, the United States, which is the world's largest consumer of natural gas,
will become dependent on gas not only from Trinidad and Tobago, Qatar and
Algeria, but from Russia.
Now, the question is what does this mean for the
national security of this country. There's no doubt, of course, we all know
energy security and national security are two sides of the same coin.
Most
analysts will agree that Russia's natural gas industry is the most opaque sector
of the Russian economy and that Gazprom, the Russian state gas monopoly, is a
secretive corporation responsible only to the Kremlin.
The International
Energy Agency, as my colleague just mentioned, recently predicted by the end of
the decade, gas supplies will be very tight, as will be oil supplies. The
United States uses over 600 billion cubic meters of gas yearly and the gas that
will be arriving as Canadian and Mexican increase, the decrease will be in the
form of liquefied natural gas, LNG, which will create a huge can of worms for
this country, both in terms of security of regasification terminals in the
United States, in the Gulf of Mexico, on the east and west coasts, the security
of energy tankers, carriers bringing this in.
The Coast Guard, which is
mandated to protect these LNG ships, how is it going to react and what are the
possibilities of danger?
But that's a separate can of worms, except that
Gazprom, this opaque corporation, recently, in April, Gazprom's spokesman said
that Gazprom intends to control ten percent of the U.S. gas market in two, three
years and 20 percent by the end of the decade.
Now, if the United States is
going to be dependent on Russian LNG 20 percent of its consumption, then we have
to look at this very carefully and what is going on and do something about it
before we become dependent.
Russia is not Saudi Arabia. I mean, we're
dependent, to some degree, on Venezuela and Saudi Arabia and other non-free
countries, but Russia is a country which is able and is willing to project its
hydrocarbon power around the world. We've seen this and we've seen this in the
countries of the former Soviet Union and I believe that that's one of the fears
we have to examine.
One of the reasons for the opaqueness in Russia is that
Russia does not have a foreign corrupt practices act. Company executives,
Russian company executives, especially Gazprom, let's get down to the bottom
here, Gazprom executives are not bound by any legal restraints when it comes to
their business practices abroad, and this is mostly evident in central Asia, as
my colleague pointed out, a region where top officials have regularly been
suspected of funneling money from oil deals and gas deals, above all, gas deals,
into their hidden offshore accounts.
This lack of transparency has helped
Russia gain control over the central Asian energy market, over the whole sector,
and has been instrumental in keeping Western countries at bay, out of central
Asia, out of the energy sector.
It's far more profitable for key officials
in these countries, in Turkmenistan, Kazakhstan, Azerbaijan, to deal with
Russia. Russia is far more amenable. Russian executives, Russian companies are
far more amenable to giving kickbacks than to sign deals with an American
company which is prohibited by law from doing so.
The result of these types
of activities, the result has been to sabotage Western efforts to diversify its
supply of natural gas. Russia has been buying central Asian gas, has
practically created a monopoly on central Asian gas, and this has made western
Europe even more dependent upon Russian supplies.
Now, I believe it's a
mistake to believe that Russia's efforts in central Asia to control central
Asian pipelines, for example, and gas production is being conducted merely for
commercial ends. The greater strategy, I believe, is to prevent alternative
supplies from reaching western Europe in the event of a crisis.
In other
words, by monopolizing gas supplies and their transport routes, Russia is better
prepared to use gas as a weapon to further its foreign policy ends.
Let me
give you an example. Ukraine for years bought natural gas directly from
Turkmenistan and there were kickbacks being given, of course, that was clear.
But then Russia came in and they gave bigger kickbacks and signed a contract
with Turkmenistan, at 25-year contact, to buy practically all of Turkmenistan's
gas production.
And then Ukraine was forbidden practically from dealing
directly with the producer, with Turkmenistan, and had to buy all Turkmen gas
initially through Russia and then through a middleman company which nobody
really understood what it was. It was totally useless and there was no reason
for its existence.
However, this middleman company, within a span of a few
years, has evolved into a tremendous empire. Now, 50 percent of this middleman
company is owned by Gazprom and Gazprom refuses to explain how and what it is
doing with this middleman company.
The other 50 percent is owned by a
Ukrainian businessman who never had any links to the Ukrainian government.
Now, we have to remember that the lack of transparency, the opaqueness of these
deals is hardly ever known to the Russian public or the Ukrainian public, thank
God, now is much more aware, but the Russian public is not.
Why? Well,
first, for the simple reason that Gazprom, Gazprom Media, a subsidiary of
Gazprom, controls the main Russian newspapers and radio stations and it's not
been allowed these outlets, these media outlets to inform what the parent
company is up to.
And I have to add, as an aside, look at the president and
the former president of the Turkmenistan. The current president of Turkmenistan
has now ordered or begun an investigation into the private bank accounts of his
predecessor, which are allegedly kept in German banks. Now, how serious these
efforts to track down Niyazov's bank accounts are, I think Global Witness is
doing an excellent job in trying to track them down.
So as a result of these
deals, Ukraine is now totally reliant on Gazprom for its vital energy supplies,
to the point that it can be blackmailed at any time into doing what the Kremlin
wants.
I had mentioned that Gazprom wants to control up to 20 percent of the
U.S. market. And let me just briefly end it on the point that if Russia, by the
end of this decade, in three or four years from now, is to supply over 60 or 120
billion cubic meters of liquefied natural gas, LNG, to the U.S. market and a
crisis erupts in U.S.-Russian relations, the problems can become very intense in
terms of supply at a peak season of consumption, in the winter, for example.
The one solution I would offer, in addition to what my colleague mentioned, I
think the OSCE should somehow plan that the member states adopt something
similar to the Foreign Corrupt Practices Act we have in the United States as a
mandatory piece of -- whether it would be legislation, but something that the
member states would have to adhere to.
They might not adhere to them, that's
quite obvious, some that will not, but I think it would be a beginning, because
we are entering into a period of world history where easy extraction of oil is
over.
The point has come, as the International Energy Agency has pointed
out, there's no lack of oil. There's the problems of getting to it and it will
get worse and worse.
When the world becomes much more reliant on liquefied
natural gas, LNG, competition will become very fierce between us and our allies,
as well, between us and western Europe, Japan, South Korea, for supplies which
are going to be very tight.
I think it's in the interest of the United
States and the interest of the national security in the United States to try to
bring some order into this emerging market for LNG and realize the dangers which
are inherent in it.
Thank you very much, sir.
HASTINGS: I thank you
both. You both have enlightened our testimony and rank some alarm bells that
I'm sure should set our continuing concerns.
I'd like to turn to the
co-chairman for any questions that he may have and then I invite the audience,
if you received one of our slips, if you would submit your questions, I'm sure
somebody will be picking them up, the staffers over on this side.
All
right, thank you.
Senator Cardin?
CARDIN: Thank you, Mr. Chairman. I
appreciate the courtesy of allowing me to question first.
You got my
attention on the LNG security issue, since there is now application to put
another LNG terminal in Baltimore, in a populous area, that our governor is
opposed to for security reasons and the regulatory process here is unclear as to
how it will proceed on those types of applications.
I just mention that as
just one of the side effects of our greater dependency upon LNG.
You also
mention that OSCE should take a more aggressive stance and the member states
enacting anticorruption, kickback type legislation, such as we've enacted in the
United States. The United Nations has been working on such an effort
internationally.
In the OSCE, our delegation did author an amendment to our
annual document, I think, two years ago or last year, where we did encourage the
states to enact legislation similar to what we've enacted in the United States.
The problem, of course, is there's no monitoring of that and there's little
desire in a corrupt state to enact that type of legislation. The problem we
find is that it's so engrained in their culture, kickbacks and payments, it's
almost a way in which you get governmental services is by paying kickbacks.
I guess you have brought up very serious problems in these energy-rich states
and I'm not sure yet we have a game plan for how to deal with it. Reporting
laws would be great. If we could get more transparency, I'm for that. I think
that makes a good deal of sense and I think we should work for that and perhaps
we would get accurate information, but I'm not sure.
So I guess I'm looking
for some more far-reaching proposals that we should be looking at to try to deal
with the transparency issues.
Of course, one option is we're so dependent on
these energy sources. If we weren't as dependent on these energy sources, then
we would be in a much stronger position to say that unless certain reforms are
done, we have other alternatives. But we don't have that many other
alternatives today and it just makes even more imperative the grater
conservation of energy and the greater development of alternative renewable
energy sources, so we're not as dependent upon the fossil fuel energy sources
that are generally produced in states that lack basic transparency in the way
that they do business.
But I think we've got to be bolder. I think we've
got to look for a more aggressive stance, in addition to an energy policy that
gives us the opportunity to have options that we don't today.
Any thoughts?
HASTINGS: Please, Mr. Taylor?
TAYLOR: I think one of the things I was
trying to stress when referring to -- I basically agree with exactly what you
just said. I think collectively, and I'm not just talking about the United
States here, but the Europeans have, as well, the same problem, and let's bring
in some others.
China, we're collectively referring to this great worry
about China's increasing consumption, but per capita-wise, China's consumption
is minimal compared to ours. And so if we expect, as we have done, to export a
lot of our manufacturing into China, then we're partly responsible for the
expanded energy consumption in China. That is a fact of globalization, it would
seem to me, and that is only going to get worse, not better.
So these whole
constraints we're talking about are going to get worse in a climate when the
supplies are getting worse.
You mentioned, rightly, before, the issue of
gas in Russia. If you think of the near neighbor, Canada, we're now at the
stage with gas in Canada where it's either gas to keep the Tar Sands projects
going or it's gas for the U.S. gas market. It's not both. There isn't enough.
That's where we're at.
So a lot of the people who are saying, "Oh, yes, Tar
Sands will come and rescue us from our oil depletion problem don't take that
into account, leaving aside the fact that oil development from Canada isn't
really going to replace that much, given the depletion rate.
So the
situation's going to get worse, not better, and it's not going to get any better
in terms of price at all. In fact, that's going to get much worse. Quite how
and when? Well, we'll have to see.
I think we have to have many more
things. Transparency is simply a tool. If you don't have it, you can't ask the
questions. You're absolutely right. Do they do it right? But that's why EITI
is interesting, because in September, we get to the stage where we have a
verification agency properly functioning. That's very important.
If the
verifying process for political expediency, because of people on the board or
not, let's say if it doesn't, because there will be a big rile about that. But
if the verification process is solid, then those who don't perform are going to
get kicked off.
Now, if it would cost you a lot to get kicked out of EITI
and the incentive for joining was quite a high value for joining, well, that
might change the dynamic a little bit.
If you then include reporting
requirements along the lines of that which I've just referred to, you could
create the scenario where the vast bulk of the world's oil and gas companies,
and I include the three biggest Chinese companies in that ticket, as well,
because they are in the United States, they have a presence here, so they'd have
to do the same thing, you would, by default, force transparency around the
payments they make in every country of operation.
And at that point, you
then go out in the public domain, data, this is what came in. Then you've got
nasty people like us, nicer people like you guys in the Senate, in the House,
wherever it happens to be, other jurisdictions able to stand up and say, "Hang
on a minute. You know, so-and-so wants to come and see the president this
week." It's a great prestige opportunity.
I'll give you an example. It's
not to do with the area we're talking about, but, for example, the president, we
thought, in a very good initiative, launched the kleptocracy initiative a couple
of years ago now. I can't remember the timing now, I think 2006 or 2005.
And whilst this is a great initiative, very shortly after the announcements that
I picked up, we had President Obiang essentially getting the red carpet
treatment here in Washington. President Obiang stashed $750 million in Riggs
Bank, which is the reason why, along with a couple of other reasons, as well,
but one of the main reasons why Riggs doesn't exist anymore.
And, yet, for
sovereignty reasons, that money was not held. Now, this was stolen money. It
was in, they claimed, state accounts. But de facto, Obiang had personal control
over those accounts. How can that be a state account? There's a farce.
But
sovereignty always seems to be the point where we all stop and we can't touch
sovereignty. But I would counter that by saying who gave the sovereign rights
to President Obiang to basically have sole control, at his discretion, over an
account with $700 million in it, all coming from state oil money, in this
example.
We could probably repeat the same about Nazarbayev, I would
imagine, if you think of the Swiss account. So the parallels are there.
So
to me, sovereignty simply doesn't stretch there, whether you're elected or
otherwise, and Obiang, frankly, if anyone thinks he was elected with 99 percent
of the vote, well, that's (inaudible).
So these are options to have assets
frozen.
CARDIN: Mr. Kupchinsky, let me give you a response to respond to my
concerns. But let me add just one more thing to it, and that is EITI.
Is
that, as a voluntary organization, effective in trying to deal with some of
these issues or should we be looking at a stronger mechanism?
TAYLOR: EITI
is the international game in town right now. It is functioning by virtue of the
fact that various states are participating, including the United States, in a
way that's meaningful now as opposed to before, but we'd like to see more.
It is the only game in town. It is going to deliver in some countries. We
still have doubts about its capacity, because of its voluntary nature, in
countries where you have kleptocratic elites who have no intention of moving.
That's why we need a mandatory mechanism to create the conditions why there
would be disclosure.
So it's good insofar as it goes. It is not necessarily
the whole picture and it is still only going to deliver this small component.
CARDIN: Mr. Kupchinsky?
KUPCHINSKY: One solution which comes to mind is
that the member states of the OSCE, that they adopt national legislation and
make their companies -- along the lines of the Foreign Corrupt Practices Act
and make sure that their companies, their energy companies abide by their law.
For example, in Germany, the head of Ruhrgas, the largest German gas company,
also sits on the board of Gazprom and this is a very cozy relationship, where
Gazprom is the biggest supplier of gas and he's sitting on the board. He's
obviously not going to rock the boat.
Former Chancellor Schroeder is sitting
on the board of the North Stream Pipeline. He obviously is also not going to
rock the boat. When the cost overrides on the construction of the north
pipeline, the Russian costs are going to be phenomenal and you know where the
overruns are going to go.
This is a big problem. Let me give you just a
brief thing of how it looks internally. The person in charge, RosUkrEnergo, the
middleman company bringing Turkmen gas to Ukraine, is a member of the board of
Gazprom. He's also a former KGB agent.
The person in charge of Gazprom
sales of gas to Ukraine, Belarus, the Baltic countries and what is a former KGB
agent. The head of Rosneft, one of the largest Russian oil companies today, is
a former GOU, former military intelligence agent.
It seems that, all of a
sudden, intelligence agents have become energy dealers, energy traders. It's an
amazing transformation. And they're responsible for their controller in the
Kremlin, another former KGB agent.
I don't believe in coincidences like
this, that they happen. Don't forget that the guy's also in charge of this
middleman company bringing gas from Turkmenistan to Ukraine, he's also on the
board and the head of the board of Gazprom Media, in charge of the newspapers,
the media outlets that Gazprom owns.
So here you have -- I mean, I'm not
paranoid, I hope I'm not, but this is beginning to look very suspicious.
So,
again, I repeat, I think one possible approach is to make the companies
responsible for the implementation of this. The Russian companies will find out
pretty soon, though, not only the Russians, but the central Asians, that if
Conoco Phillips, BP, Shell come in and they see that something is not right,
they're going to make it public and they're going to demand that if the Russians
want to deal -- the Russians want to sell as well as we want to buy and if we're
telling them we're not going to buy and if we can force the Chinese and the
Indians to do the same, I think we have a very strong weapon here.
The
question is getting the Chinese to go along with it and corruption in China is
not a fly by night thing. I mean, it's deeply embedded in the system today.
And now and then, an official gets shot, which is better than in Trinidad and
Tobago, where they use the cat-o'nine tails to whip them.
And Trinidad and
Tobago, as a matter of fact, is the largest supplier of LNG to the United
States.
CARDIN: I thank you both for your answers and your testimony. I
think working for transparency at the company level makes some sense and that
might be a way that we can get around some of the corruption issues within
countries. If we can establish a standard for international business among the
major countries, that may be a way of trying to get at that.
Thank you.
Thank you, Mr. Chairman.
HASTINGS: Thank you very much, Senator.
Several things come to mind and one is a process issue and it has to do with the
OSCE, which is obviously the commission's principal concern, how we might be
able to impact the matters that we have discussed here today.
The
implementation, for example, Mr. Kupchinsky, of a corrupt practices act of sorts
would require consensus in the OSCE and one of the significant players in the
OSCE is Russia, who likely would never agree.
It leaves me puzzled how we
gain transparency with countries who do not wish to be transparent and what
leverage, if any, we have.
I don't believe personally in too many exercises
in futility. And while it may very well be something that we pursue, and I
think rightly so, I believe when you get to Vienna, the end result will be that
it will stall there and such an enlightened corrupt practices act might very
well not come to fruition.
Traveling along the same lines, there are certain
things that at least we know Russia, as a country, is projecting and it is in
our face. For example, if we were to turn to the Caspian Pipeline Consortium
and their attempts at takeover there and the use of retroactive tax claims,
that's happening in our face and it leads me to wonder, aside -- there's been
something in my mind about America, quote-unquote.
There is America and then
there are American companies that are thought of as America and when you think
about policy, to what extent does Exxon operate, for example, outside the scope
of what the State Department or anybody else might think when they're dealing
with this commodity and when they have a board that has a bottom line?
And
even though we have transparency, their profits have risen. We know ostensibly
that their profits go to their shareholders and we know that the bad countries'
profits go to bank accounts unknown, but at the very same time, all of them seem
to be playing in the same oilfield, no pun intended.
And how do we separate
that? How do we control, how do we manage policy that will cause big companies
to comply with EITI or with a corrupt practices act?
In short, what I'm
saying is that it's rather troubling that we don't have as much leverage as
would like to have. And where, if any, leverage do you see that we might
project?
And I might add, gentlemen, I heard both your testimonies loud and
clear, but following along with Senator Cardin said, maybe just to expound a
little further as to how we might get a -- we meaning OSCE, we meaning the
United States government, might have a greater impact on this process than we
have now?
Are we trying and failing, as another way of putting it, or if we
were to exert diplomatic efforts, to what extent will they be successful? What
type of diplomatic efforts, regional? When you say get China and India to do
something, it's a little larger order than us sitting in the comfort of Room 415
in the Russell Building and saying it ought be done.
How? How can we do
these things? And if I have a kernel of a question in there, I'd invite
responses from either or both of you.
Mr. Kupchinsky?
KUPCHINSKY:
You're a hard task-maker. I mentioned one thing -- putting the onus on the
companies, on the energy companies, let them try to bring order into their own
house. That's one possibility.
One of the levers we have, I think, on
Russia, not only us, but overall the other members of the OSCE, as well, is the
question of banking, which my colleague brought up. It's extremely important.
Most Russian energy money, illegal money is laundered out of Russia. The U.S.
State Department believes there are like $7 billion a year. Other
organizations, including the Russian internal ministry, believes it's more on
the order of $10 billion to $15 billion a year that's laundered out of Russia
into Western accounts.
Unfortunately...
HASTINGS: And/or Western
businesses.
KUPCHINSKY: And/or Western businesses, yes.
HASTINGS:
Including in South Beach, Miami. But go ahead. Most people don't know about
it.
KUPCHINSKY: You've got to give me the address there. This laundering
activity is an Achilles heel for them, except that banks like Austria's
Raiffeisen Bank, which has been involved in a number of very sleazy deals in
Russia, in Ukraine, in other places, in Austria itself, are just as responsible,
because they refuse to abide by the rules of the game. It's the German banks,
as well, and others.
The Financial Action Task Force in Paris was probably
very good in terms of controlling and decreasing terrorist financing. They did
an excellent job, I believe, as far as it could.
But the question of this
type of laundering from the energy businesses, from Russia, as well, Russia was
not financing terrorism. Russia was financing its own children who were
stealing its money.
Now, I think that's a very strong possible approach we
can use is to force these Western banks to report and open up who these accounts
are held by, who are the principals of these companies and force these
companies. When they open an account, they have to put down the name of the
principal.
Cyprus, for example, has done a lot to stop money laundering.
But, yet, when you go through the different websites, the principals of these
companies are never mentioned. They're hidden and their national legislation
allows them to hide it.
Once this is gone, this creates a problem for the
corruption in Russia. That's one possible way of decreasing it. We won't stop
it. I'm very pessimistic about stopping it all, but I think there are levers of
controlling it and decreasing it.
TAYLOR: I think, for me, this is really
why we come back to this kind of need of a cocktail of mechanisms. So we should
see transparency as simply a component. It's actually quite a small component,
but we're not even there in a lot of these different states we're talking about.
So the oil and gas companies, using this example, are one vehicle to get
transparency, because they, after all, are responsible for large percentages of
the revenue streams. And so requiring revenue transparency is a way of putting
the information in the public domain and let's see how those mechanisms can
work.
They will vary depending on the country and the opportunities and the
extent to which it's possible to lean on them, if that's not an inappropriate
term. That's one part of it.
Now, that kind of brings me back to EITI, in a
way, I think, and the whole energy security issue, which is really quite
(inaudible), and, that is, the lion's bulk of the energy resources are still
being consumed by, as we've mentioned before, those wealthy principally Western,
but including Japan and a couple of others, industrialized nations.
China, a
captor anyway, is only just coming up and the fact is that there's such a
crunch, there's such a pinch, there isn't much slack in the system. China is
going around scrabbling to pick up what's left and there isn't that much left.
In addition to that, if you go to, say, offshore Angola, a lot of the places
are frontier places. They're very difficult and offshore Angola, it's frontier
because it's 3,000 meters of water, and you come down to really only five
companies that can drill and that's Exxon, Chevron, BP, Shell, Total, the
Norwegians, but even they can't do it very easily because they don't have the
finance to do it.
So one of China's main companies has now got a
significant slice, which block is now 18, I think, it's a deepwater block, but
actually the operator is Total. They can't do it.
Now, of course, it will
not stay like that. In a decade, we'll be talking about a different situation.
But for the time being, China is very, very dependent on the existing
arrangements. That means China is vulnerable. That means there's an
opportunity to bring China into a process like EITI.
So this is an area
where I know the State Department did make overtures. They didn't get much of a
response yet. But let's see something revamped and reinvigorated. Get China
into EITI, it starts to look very difficult for certain countries that currently
who go in the Chinese camp (inaudible) have to go.
If you then add the
reporting requirements, I'm afraid the Chinese companies are registered here and
listed here and otherwise. They rely upon this country and in Europe, as well,
for raising finance for the projects they're involved in.
Of course, they
can go back home, but, there, there is an element of credibility and
respectability they are looking for. So you have an angle to pull them in in a
way that they can't even stand up and say, "You're aiming this at us," because
we're not. This is about everybody. This is about leveling the playing field.
That's one bit.
And I've talked all about transparency in the context of
addressing despotic elites, if you like, and creating transparency. I just want
to stress, when we launched Publish What You Pay and even before that, this was
as much an issue of bad behavior by different companies in the field, whichever
field we're talking about, as it was about kleptocratic elites.
It is
simply not true to say that the worst excesses of the Elf regime, for example,
we've all heard about the Elf trials and what came out about Congo-Brazzaville.
Angola was in there, as well. I spent nearly three years investigating theirs
and other companies' activities in Angola, for example.
And I found an
invisible subsidiary of Elf which did not exist on the books, which was shipping
arms from an Israeli state arms factory. What the hell is an oil company
shipping on through a subsidiary that doesn't physically exist? I mean, it was
completely farcical.
Elf was not the only one. If you want to find out what
happened in Angola, you have to ask how was it that the three big corporations
managed to get Blocks 31, 32 and 33 in Angola at that time and the way that they
could do it was only through middlemen and the middlemen were effectively the
Russian mafia or at least the Russian mafia is a very broad term, but they were
represented in that equation.
These were people who operated at the very
highest levels, who talked to presidents, who arranged bank accounts and
facilities. Nothing has ever come out about that. There's no discussion about
that.
So these companies, we've seen in the Giffen indictment, all of
them, at various stages, in different jurisdictions, have done things. And so
there is a reason for creating revenue transparency, I think, in every
jurisdiction for all countries, for each of the companies, because it becomes a
lot harder to run slush funds in offshore centers when you have to account for
every penny in every country you operate in.
So I think we have to see it in
this double direction. And, again, that's still only one bit. We have to
address this issue of banking, which is perhaps another subject of discussion.
HASTINGS: We do have several questions from the audience, but you piqued my
interest when you mentioned Angola and I'd just share my personal experience in
a limited way in going to Angola and arriving at the airport and taking a ride
to the president's residence, Mr. Dos Santos.
And I'll never forget the
images along the way of that roughly three U.S. miles, I would think, maybe 2.5
miles to his residence, with people, particularly children, standing in pools of
filth and then me arriving at his residence and seeing the ostentatiousness of
same.
But on the way, there was something else that I noticed and I asked
the driver what were those walls along the line and there were a variety of oil
companies behind those walls and you could see occasionally through them the
swimming pools and the tennis courts and they were companies from different
areas of the world, including the United States.
And it struck me
interesting. I know that because of other concerns that we had coming into
Angola, that I certainly did not leave the president with a favorable impression
from me as a person, for I mentioned the things that I just said. And I might
add, if any of you see him, tell him he didn't leave a favorable impression upon
me either. So that cuts a lot across the countries.
Let me just read the
questions that we did have come to us, only because I want this to be a practice
in the future.
Gentlemen, I don't know whether either of them will pique
your interest. I do believe that one or two of them you may have answered.
But one says, "Economic and political development over the past several years
have demonstrated the effectiveness with which Russia has used bilateral ties
with European governments and energy companies to disrupt development of
alternative energy transit infrastructure and a common energy policy. What
needs to be done to counter these tactics and how can the EU countries pool
their economic weight to effectively fight Russian monopolistic power?"
Another I believe you may have answered, in part, Mr. Taylor. It was directed
to you, "Can you please elaborate on the point you raised about Azerbaijan and
Nigeria being expelled from the EITI?" I think you did mention that in your
previous comments.
Another, "What should the OSCE adopt as a standard for
resource revenue transparency? Should EITI be mandatory for OSCE countries or
should there be higher standards? Would you recommend that all OSCE countries
sign onto EITI?" And I believe that reauthorization process is ongoing and
upcoming soon and hopefully many of the OSCE countries, in my view, should be
encouraged to join.
And this one is -- and I guess it was more for me and
for Senator Cardin, "Why will the U.S. Congress not cap the price of oil? The
idea that demand determines the price of a necessity for Americans is destroying
our nation's people. We need an economic recovery based on technological
improvements in nuclear power and VAE systems," and, in parentheses, it reads,
"is leading corruption regarding oil and aerial space today."
And the final
one, and then I will allow each of you to respond as you see fit, the final one
that was just handed me, "The most recent report on Russia in Freedom House's
'Nation's in Transit' study shows across the board decline in Russia's
democratic performance. How does Russia's energy wealth factor into that
country's critical upcoming elections?"
Several of which are very good
questions. If you will permit me, the question directed to those of us, Senator
Cardin and myself and other representatives, I think America's energy policy is
a work in progress. And I was put the question earlier by "Bloomberg" reports
-- a reporter that spoke with me earlier today and I didn't want to predict what
the ultimate energy legislation will look like.
But what I did say is I do
not believe that it will happen this week or next week and I do believe
personally that it's going to take a bit longer for the various undertakings.
The Senate has passed a measure, as many of you know. The House is undertaking
its own reviews in a variety of ways. But when you talk about a cap on oil, you
have to recognize the immense complexity that is involved and I do and,
therefore, I don't like to make snap judgments with reference to where we go
with our energy policy.
But, ladies and gentlemen, particularly this
audience, most of you, other than Mr. Kupchinsky and myself, and I only
reference him because we have the most gray hair in the room, but most of you
will be here 30-40 years from now. The things that these gentlemen have talked
about today are going to be tremendous intersections in your lives.
I ran
for office for the first time in 1964, in the state of Florida, for the Florida
legislature, and I advocated at that time desalination and I advocated that
Florida should be a laboratory with the sun that we have for us to develop
alternative energy sources based on the use of solar energy.
Later, I ran
for office and then became concerned about water, the missing link in this
hearing, but something that is critical, as well, and many of you likely will
see as many world disputes and local disputes about water as you are likely to
see about energy.
What I want to say to you is to have a real sufficient
alternative energy production in place technologically is going to take another
15 or 20 years, no matter the legislation, no matter what anybody tells you or
thinks, and I want you to know that much of that technology, much of the
invention, much of the patent resources that are out there, the kinds of things
that you are likely to see in your future have already been in the works, but
you're not talking about something.
I listened to people the other day talk
about how simple it will be to meet CAFE standards. Well, I'm not so sure that
people understand that meeting the CAFE standards means an increase in the price
of the automobile. And when you start weighing all of these things, then you do
have to be particularly careful and legislators who are more careful than am I
are themselves on these kinds of questions until you ultimately will see the
results.
I believe we will get a new direction in energy policy, but I don't
think that we are going to get it in one lump sum and there's going to be some
magic wand waved out there and all of these things are going to come together.
It's going to take time. It's going to take a lot of legislation. It's going
to take a lot of cooperation.
And, as usual, what will wind up happening
is the business community worldwide, globally and otherwise, will be ahead of
all governments. Governments limp along with policy, but businesses will look
for the best solutions that they can make money off of. And so in the energy
field, a lot is going on.
I'll give you one final, and I apologize for
taking so long, but in Ukraine, Senator Cardin and I and nine other of our
colleagues met with President Yushchenko and it had never occurred to me, when
he began his discussion about black soil and what he was talking about was the
residual damage that had occurred as a result of Chernobyl, and he was asking
for the Academy of Sciences to give some thought to the possibility of growing
something on that soil, even though it's radiated, for energy production, but
not so much for human consumption.
And it's certainly something that needs
to be addressed and looked at, because they have this vast field of, perhaps the
second or third largest, black soil in the world and it's fertile and perhaps
corn or whatever could be grown there for something to get us away from the
fossil fuel.
I apologize to both of you. I took a long time. I'll allow
you to take as long as either of you wish to answer our questions and then we
will be concluded.
You want to start, Mr. Kupchinsky?
KUPCHINSKY: The
question which intrigues me the most, which I've given a lot of thought to in
the past, is the problem between Russia and the European Union and the question
of a common policy, how Russia is dealing with individual countries in the EU to
try to win them over to their side, to sign long-term or short-term contracts
for gas and oil deliveries and to split the EU from a common policy on energy.
One of the problems, one of the reasons I think that the EU is faced with a
rather severe and increasing energy problem is the United States. The United
States, nobody really wants to mention these, but the United States is, in a
way, very, very much responsible for what's going to happen in the next 10 to 20
years.
If we look at the facts, we have three percent of the world's
population and we use 25 percent of the world's oil supplies, over 20 million
barrels of oil a day. This is more than China, Russia and most of Europe uses
in a day combined. California consumes more gasoline than China.
Now,
these are very frightening statistics. Not only are they frightening in the
sense of the over-consumption of energy in the U.S., it's the image it projects
around the world.
I mean, we've been getting bad press on the Arab, on the
Middle Eastern street for many, many years and this is one of the
considerations, where Americans are seen driving around in monster cars, living
in an air-conditioned environment their entire lives, wasting energy constantly.
It creates not only sort of hatred, it creates the problem of others are not
getting enough.
Now, if we can't learn -- it's not only a question of how
many miles per gallon your Hummer is going to get, eight or 12 miles a gallon,
or your SUV, and Detroit is screaming that the U.S. auto industry will collapse
if the mileage goes up to 35 miles a gallon in, what, ten years from now.
That's nonsense. That's total nonsense. But I think we have to see ourselves
as being responsible and if we want to help the Europeans and others, we have to
cut back. I mean, there's no way. We use more gasoline for air-conditioned
automobiles than Indonesia uses as a country, and this is ridiculous. This is
nonsense and this cannot continue, but it will.
I forget who did a study.
What do Americans look for when they buy automobiles? In 2005, mileage was
number, like, 15 or 20 on the list of things that are more important. This
year, it's only number 12. What's more important is the audio system on the
car.
Now, this is crazy, of course. I think you're absolutely right in
saying that it's a process. We're not going to change the buying habits of the
American consumer very quickly or the habits of Detroit first creating a demand
for SUVs and then saying that Americans want SUVs. First, they create it with
the advertising and people think that they're driving in the Australian outback
when they're actually going to CVS to buy Viagra or something. This is
nonsense.
So I think it's a very serious problem. The European Union is
suffering in many ways because of our over-consumption. Russia, of course, is
playing a game with everybody, trying to divide and conquer, and they're going
to continue doing this. Whether Putin remains in office or whether he leaves,
it doesn't really make much of a difference.
It's not a question of who will
be the president. Gazprom will continue to be the presidential maker in Russia
and we have to find a way of dealing with that.
Thank you.
HASTINGS:
Thank you very much.
Mr. Taylor, I said you could have as much time as you
need and inside five minutes, I mean that.
TAYLOR: Here we go then. Yes, I
recognize your description of Angola. I could add a few like that, too. It's a
very distressing place to go to at that time.
I might also say I think Mr.
Dos Santos and his cronies probably, between them, are Africa's and possibly
even the world's biggest kleptocrats right now and we certainly are interested
in seeing what assets are out there and where they might be. So we might have
more to say on that at some point.
And somebody mentioned, I think you
mentioned, and I just thought I'd try and correct that, maybe it's the wording
of the question, about me suggesting Azerbaijan should be expelled. My comment
was more to do with the fact I think we've been pleased Azerbaijan is performing
on the delivery of data.
They're doing EITI. Everyone kind of recognizes
that. I think there may be still some shortcomings in the delivery, as is still
for Nigeria, as well, but they're the two examples where we've got delivery
going on.
My point really relates to the inconsistency between jumping all
over civil society and suppressing freedom of expression, stroke freedom of the
press, and EITI being seen as an accessory, because the whole point of EITI is
the cornerstone being the capacity of civil society to hold government
accountable and part of that surely is public domain debate and discussion in
and outside of the media.
And if you suppress and beat up the media, then
there's a schism there. There's an inconsistency there.
So all I'm saying
is for a proper verification process, a validation process to be effective, then
things like locking up your press or having them bumped off, frankly, in my
opinion, should get you bumped off of the list again. It might not get you
bumped off the list as far as Equatorial Guinea that hasn't done anything at
all, but there should be a shot across the bows there and we need to see that
EITI can help deliver a more sustained capacity of civil society to do things.
So in my opinion, they're right on there at the moment, but let's see what
happens. They have to pass these tests and the validator needs to be good and
that's an area I think where the U.S. could play a very effective role as its
board member to ensure that validation actually means something, because
otherwise we'll have another wishy-washy process.
And talking of wishy-washy
processes, you mentioned earlier where the money from Turkmenistan was. We have
had this concern by Baffin (ph), the German regulator for banks, and also
Deutsche Bank themselves, they are concerned what we knew, what we thought we
knew to be the case, the accounts, the Turkmen accounts in Deutsche Bank in
Frankfurt.
So I think one thing, if I may be so bold, that you and the
committee could do would be to seek to obtain out of Baffin (ph) and Deutsche
Bank why it was possible to effectively have accounts under the sole control of
President Niyazov, because I, frankly, can't see much difference between that
and the sole control exercised over the money in Riggs Bank, and that was enough
to kill Riggs Bank off.
Now, lots of people say, "Well, there's a difference
between the regulatory requirements in Germany and the regulatory requirements
here," but that's precisely the point. Someone needs to be jumping all over the
Germans and saying, "This isn't good enough," because I think there's no other
way of looking at it. But Deutsche Bank offered facilities for effectively an
offshore account with $2 billion in it, where there was no control and oversight
by the state government structure or anything.
It was, de facto, his account
and I think that's a problem. So that is a good example.
And someone
mentioned BAE Systems. I can put my hands up and say I think the Brits'
suspension of the BAE Systems investigation was probably one of the more
shameful acts we've done in recent times and some of us have some aspirations to
see that challenged. There's a legal challenge going on at the moment to see if
the investigation should continue or could be reopened.
I believe the
Department of Justice here is interested, which I fully commend them to continue
with their digging.
Oil well factoring in the Russian election, I think you
very beautifully, eloquently said something about that. I'd be interested to
hear more about the Senate energy bill, but maybe we can talk about that.
Thank you.
HASTINGS: Gentlemen, thank you both. And, ladies and gentlemen,
thank you all for your patience.
I assure you that the full transcript
will be made available to the other members of the commission. You certainly
have given us a great deal of food for thought and useful information, I
believe, that will help us both in the Helsinki process and in our legislative
responsibilities to try to produce some positive results for everybody.
Thank you so much. That concludes the hearing.
[Whereupon, the hearing was
ended at 4:33 pm]
END
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