The risk of  ‘Dutch Disease’ will worsen by 2020 and predicts that “Russian oil and gas will run out in 21.9 years and 9.4 years, respectively”. The report states that Russia should turn its focus on innovation in the energy sector.

There are many obstacles to face, including legislative, as outlined in  Forbes,  as well as,  “lack of motivation, lack of information, lack of funding and long-term investments as well as lack of organization and coordination” according to the report.

In spite of these obstacles, Russia’s regions have been pioneers, the UNDP reports.  Laws have been enacted in 43 regions, many have energy-saving programs, and 75 regions have established funds and agencies to work on energy efficiency. In the top ten regions that are considered most energy-efficient, two regions, the Amur Region and Chukotka, are number 5 and 8 respectively,  with the Sakhalin Region coming in at number 17.

This report urges the Russian government to put a real emphasis on energy efficiency on all levels of government. President Medvedev has listed energy efficiency as a key area for modernization in a recent speech to the DUMA. However,  at the moment,  it is the responsibility of the Ministry of Economic Development and it is not  surprising that energy efficiency has appeared on the list of top priorities for the Business Development and Economic Relations Working Group under the Presidential Bilateral Commission.

Although some see the obvious need for European expertise and technologies, as well as direct investment in energy efficiency projects, the United States, and, in particular, the Pacific Northwest could play an important role.  The Pacific Northwest is increasingly seen as a leader in energy efficiency in both  expertise and technologies. Perhaps a partnership between the Russian Far East regions and the Northwest will give a boost  to Russia’s  move to energy efficiency while, at the same time, creating jobs and other joint opportunities for both country’s businesses. It is worth exploring.

Although this was both a very interesting and personal account of that dramatic time in the Soviet Union, Russian people are now hearing (again) from their leaders that modernization” and “innovation” is essential to Russia’s future. Of course innovation is critical to all economies and finding ways to achieve innovation is the trick. Today, Prime Minister Putin spearheaded a new commission on innovation to “enforce its modernization agenda” and is prepared to “assign 1.1 trillion rubles [$36.8 billion], or more than 10 percent of the federal budget, for fundamental and applied sciences, higher education, high-tech medicine and specialized federal programs.” This investment is needed and signals, perhaps, a real commitment to innovation.

But not all agree. In an opinion piece in The Moscow Times, Modernization by Gosplan, Vladislav Inozemtsev cites the flaws in the approach to innovation. He highlights that the “fundamental problem in Russia’s approach to modernization is that it doesn’t seem to understand – or at least it blatantly ignores – the fact that you can’t have a centrally planned innovative economy.” He states that there is only one path – “that is the path of industrial revival based on Western technologies, the rapid liberalization of the economy in combination with gradual political reforms and a fundamental rapprochement with Europe and the U.S.”

Whether or not you agree with his assessment it is very clear that modernization is essential for Russia’s economic future and involving Western technologies and partners would be good for everyone. It would provide more business opportunities and scientific collaborations hopefully creating more jobs. Twenty-five years from now, when we look back at this important time for modernization, we hope that we won’t think as Tamara Eidelman did, that “we just needed more computers.”

Russian Foreign Deputy Minister Ryabkov and Deputy Ex-Plenipotentiary Representative Levintal

“Spark and exploit” new opportunities was one of the messages at the 14^th Annual Meeting of the Russian American Pacific Partnership (RAPP) held on Sakhalin Island this week. U.S. and Russian federal leaders listened to the issues in our trans-pacific relationship. Just less than one month away from the first meeting of the Presidential Bilateral Commission Co-chairs, Secretary of State Hillary Clinton and Foreign Minister Sergey Lavrov, RAPP participants seized the opportunity to give their recommendations and perspectives.

At the opening plenary, Sakhalin Governor Alexander Khoroshavin captured the mood of the past 15 years by stating that in the ‘90’s we were optimistic then disillusioned and now the meeting’s theme, “ A Meeting of Shared Interests”, captures the new possibilities we face. Russian Foreign Deputy Minister Sergey Ryabkov, fresh from the G-20 and United Nations meetings, cited the uniqueness of the Russian Far East (RFE) region and RAPP. Interregional cooperation, according to Ryabkov, is becoming more important in Russia’s strategy. Improving small and medium-sized business and alternative energy cooperation is a priority that he asked RAPP to address. Alexander Levintal, Deputy Ex-plenipotentiary Representative of the President of Russia in the Far Eastern Federal District, highlighted the importance of developing the “intellectual economy” in the RFE and that RAPP is a “permanent player” in the region. Matthias Mitman, Economic Minister Counselor at the U.S. Embassy in Moscow, echoed the call for building prosperity through the intellectual economy and stated that the Pacific Basin is acknowledged as the “most dynamic region in the world”.

In a discussion on the priorities of the new Presidential commission, the federal representatives responded to questions from the participants. When asked as to how this new commission is different from the previous Gore-Chernomyrdin Commission, the response was: “more proactive and results driven” and “less bureaucratic”. The Business Development and Economic Relations Working Group, co-chaired by Secretary of Commerce Gary Locke and Minister of Economic Development Elvira Nabiullina, has on its current agenda 10 items including a placeholder for the recommendations from this RAPP meeting.

In the afternoon 19 presentations were delivered by key U.S. and Russian leaders on Oil and Gas, Technologies, Russian Priority Development projects, Community Development and Transportation providing the basis for discussion in the breakout sessions the next day. Over 25 recommendations emerged from the breakout sessions focused on Expanding Trans-Pacific Bilateral Trade, Opportunities through Applied Technologies and Community Development and Public-Private Cooperation. The report with these recommendations will be forwarded to the Bilateral Commission and will be made available to the public soon.

This was a special time for this meeting. Not just because of the newly formed Presidential Bilateral Forum, which gave new energy and excitement to the work of those attending RAPP, but also because the closing day was on September 29^th. Just 15 years ago on that day, President Boris Yeltsin announced in Seattle that he wanted to “create a new relationship” between the US West Coast and the Russian Far East. No one then understood how important that proclamation would be for our trans-pacific relationship. We have come a long way since then and there is more to come.

I also had the opportunity to be on a live show called Public Exposure, a local Seattle-based news event program, and the video links (three part interview) are now on YouTube.

Part One:

Part Two:

Part Three:

I am off to Sakhalin tomorrow and expect to blog on the events that will unfold during our bilateral forum, The Russian American Pacific Partnership,  on September 29-30. More later.

It is noteworthy that this is the first summit in 7 years and that there was progress on the reduction of nuclear weapons and expanded economic ties. Monday, both Presidents announced the formation of a U.S.-Russia Bilateral Presidential Commission with working groups that are reminiscent of the former Gore-Chernomyrdin Commission. For those of us in Washington State, we have two locals leading two of the working groups: US Department of Commerce Gary Locke on Business Development and Economic Relations and Gil Kerlikowske, Director of the Office of National Drug Control Policy, on the Drug Trafficking Working Group.

FRAEC’s Director of the Russian American Pacific Partnership, Derek Norberg, is in Moscow and attended the Business Summit on Tuesday, July 7th.  He gives a more “up close and personal” perspective of what has happened, especially during the business summit itself. He reports that “there does seem a desire to ensure that a positive tone is maintained, even at the expense of addressing the serious issues that are well known to both sides. It is probably an appropriate approach, with US-Russian relations having fallen to such a low level; the re-set deserves a soft start before the real work begins. ” To read his full report, please click here.

This turnaround is being characterized by some as a “ploy” or negotiating tactic, as the Government of Russia has been “frustrated” by the slow process.  Sixteen years is a long time.  There are key stumbling blocks, namely multilateral issues such as Siberian over-flight fees and gas prices.  Also current members,  Ukraine and Georgia, have not given their support.  President Medvedev, quoted in an article in Forbes, said: ‘there are simply too many jacks in the box in the WTO negotiations’. This does suggest that the Russian government is looking for a quicker process.

Many in the business community, who have advocated for Russia’s inclusion in WTO, are surprised and concerned; they do not see any advantages for Russia to withdraw their application. Some speculate that this move is a result of the impact WTO might have on the Russian economy; that during a difficult economic period, jobs would be at stake. When asked at the St. Petersburg Economic Forum whether or not WTO would hurt Russian businesses, Anatoly Chubais, Rusnano Chairman, was quoted as saying that “80 percent of Russian companies would welcome the accession.” Not all at the forum agreed.

Regardless, most agree that this is complicated and will take time to sort through the implications. Russia, Belarus and Kazakhstan will hold talks next week in Geneva, so more is to unfold.