by R-A Business staff

Consul General of the Russian Federation in Houston Nikolai Sofinskiy believes that the partnership between the U.S. and Russia will be critical for the two countries’ economic development.

- What is the significance of the year 2007 for the Consulate?

- I must say that 2007 is a truly special year. Russia and the United States are celebrating the 200th anniversary of establishing bilateral diplomatic relations that became official in December 1807 by the exchange of letters between the Russian Minister of Foreign Affairs Andrew Y. Budberg and the U.S. Secretary of State James Madison.

The evolution of this relationship, though relatively brief in historic terms, has been anything but uneventful and insignificant. It had its share of ascents and downfalls, manifestations of partnership and hostility, unity and rivalry. Our relationship witnessed the innate longing and curiosity of the two nations toward each other. This curiosity stemmed from the underlying realization of similarity and compatibility. Unfortunately, at times, these sentiments were replaced by mutual fear, misunderstanding, and isolation.

Our relationship proved critical to the formation of the geopolitical structure of the entire world in the XX century and is destined to continue to play a pivotal role on the international arena in the foreseeable future. Its importance to the well-being of both nations, as well as to the stability around the globe, warrants a close examination and analysis of the elapsed 200 plus years, so that we can further our intertwined development, relying only on the best examples of cooperation from our high points.

2007 is also a threshold year for both countries in terms of political leadership. 2008 will most likely see a shift in our bilateral relations. Russia and the United States will elect new presidents. The State Duma and the U.S. Congress are amidst major transitions and elections of their own. Such changes will undoubtedly send ripple effects to Russian-American interaction. We at the Consulate General will be responsible for ensuring that these “waves” are navigated by all interested parties within our consular district of eight American states to the greatest mutual benefit. The latest summit of Vladimir Putin and George Bush in Kennebunkport demonstrated a clear resolve of the two Presidents to leave a bilateral legacy that will naturally and uninterruptedly span far beyond their terms of office.

- How would you describe the role that your consular district plays within the framework of the Russian-American relations?

- Our consular district consists of eight states - Alabama, Arkansas, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, and Texas. In the four years of the Consulate’s existence, we have accumulated sufficient evidence to justify the establishment of our office here. This region is very important for the whole fabric of our bilateral ties. The state of Texas, unquestionably, is the locomotive of that process.

Our consular district is on the forefront of Russian-American economic cooperation. All states, except for Mississippi, demonstrate continuous positive dynamics in bilateral trade. The region contributes 23% of U.S. exports to Russia, which amounted to USD 1.1 billion in 2006, a 13.5% annual increase compared to 2005. In the first quarter of 2007, the increase percentage grew to 25.5%. Export articles consisted mostly of industrial machinery (46.8%), transportation equipment (11.3%), including aircraft and spacecraft parts, food products (9.2%), computers & electronics (9.1%), and chemicals (6.5%). Texas is one of the leading international suppliers to the Russian market of machinery, equipment, and services for the oil and gas industry, as well as for the energy sector in general. Arkansas is a major supplier of poultry and related food products. Oklahoma provides pumps for the transmission of liquids.

Consistent with national trends, the region’s imports from Russia grow by about 30% annually, while the export/import balance represents an almost fivefold difference in favor of the Russian Federation. 50% of the overall import volume is crude oil and oil products, 18% – iron and steel, 14% – aluminum. Houston and Southern Louisiana ports serve as major American hubs for the movement of goods and supplies between Russia and the United States.

Dozens of companies from the region have offices, subsidiaries, and assets in Russia. Many of these are among the Fortune 500 – Anadarko, Baker Hughes, ConocoPhillips, Dell, Devon Energy, Emerson, ExxonMobil, Halliburton, Schlumberger, Smith International, Texas Instruments, Tyson Foods, etc. Hundreds of others regularly engage in business operations on the Russian market, either directly or through a Russian partner. A growing number of Russian companies express interest in our consular district by participating in industrial shows and conferences held locally (CERA Week, OTC, etc.).

Such U.S. federal institutions as the Overseas Private Investment Corporation (OPIC), the Trade and Development Agency (TDA) and the Export-Import Bank of the U.S., all in charge of stimulating foreign transactions for American producers, are increasingly involved in the region to provide financing for projects in Russia.

Our consular district – more specifically, Houston – is the birthplace and the main driving force behind the so-called Russian-American Energy Dialogue, fully supported by the national political and industry leader, and aimed at promoting consumption of Russian oil and liquefied natural gas in the U.S. The region is the key segment in the space programs of the two countries – both in terms of economics and logistics. Leading local hi-tech companies are more and more often outsourcing complex technological tasks to skilled scientists and engineers in Russia.

This part of the United States regularly hosts performers from Russia, featuring all types and genres of folk art. Other Russian-themed cultural events also take place here. The region has its fair share of bilateral interaction in the areas of higher education, medicine, and the sister cities program. It is home to an estimated 250-300 thousand Russian speakers becoming increasingly involved and engaged in maintaining all sorts of connections with Russia and the Russian language.

- Could you name some of the more notable examples of the region’s importance in terms of bilateral business ties?

- In the opinion of experts, one of the most promising examples of successful corporate penetration of the Russian market by a U.S. company is ConocoPhillips, which formed a strategic alliance with a Russian integrated oil company LUKOIL and purchased 20% of its shares. The two corporations are also planning common ventures in the Russian oil producing province of Timano-Pechora and are discussing the possibilities of a joint investment in a new U.S. refinery project. Additionally, they share international ambitions in some third-party countries. LUKOIL aspires to use this partnership to augment its production and sales in North and South America, to which end, the company intends to open an office in Houston. With ConocoPhillips’ assistance, LUKOIL has already acquired some energy companies in the United States, where it now owns 2 200 gas stations.

ExxonMobil is involved in a USD 12-billion oil and gas project Sakhalin-1 (which started producing in 2006), as well as in the multi-billion Caspian Pipeline Consortium along with Kerr-McGee (now Anadarko). Houston-based divisions of Royal Dutch Shell are very active in implementing the company’s program of bringing the share of Russian oil and gas to 20% in the corporate portfolio. The company has plans to participate in the largest (estimated at USD 20 billion) foreign-financed project in Russia and most complex oil and gas undertaking in the world, Sakhalin-2.

Since 1990, Devon Energy has had a successful joint venture with a Russian oil company Tatneft, through which it extracts 1% of its annual oil production. In 2004, the Schlumberger and Gubkin Russian State University of Oil and Gas in Moscow created a Technology Hub that brings together skilled and recognized experts in the energy industry to work on projects related to geological and geophysical exploration, field development, drilling, well logging, completions, and production optimization. In 2005, Baker Hughes and the Siberian Branch of the Russian Academy of Sciences opened a center for basic and applied research in the area of Earth Science.

Russian integrated gas producer Gazprom has opened a subsidiary in Houston, through which it plans to enter the American market as a universal gas trader initially. Later on, the company may decide to acquire some local gas assets, a gas pipeline or a terminal – these are some of the options Gazprom is actively exploring now. After 2012, when its LNG capabilities become available, Gazprom intends to make the United States one of its priority destinations for international gas deliveries.

Russian metallurgical company Evraz purchased in 2006 the controlling stake in the Strategic Minerals Corporation that has a plant in Hot Springs, AR, and is producing 45% of the world’s vanadium chemicals output. Russian air carrier Volga-Dnepr through its Houston-based division ensures contracts for unique cargo transportation from the U.S. government, the United Nations, and corporate clients. It ferries extra-large-size components for Boeing-787 from Europe and Asia to an assembly plant in Seattle. The largest Russian manufacturer and exporter of steel pipes TMK established a trade house in Houston for supplying a wide variety of its products to American clients. The Moscow-based MNP Group that is engaged in shipbuilding and offshore units construction purchased a well-known oil rig design bureau Friede & Goldman located in Houston and servicing the Gulf of Mexico. Local subsidiaries of the Boeing Corporation are conducting continuous negotiations and business transactions with several Russian enterprises to facilitate the operations of the International Space Station and prepare for a future mission to Mars.

- What about the non-economic aspects of Russian-American relations?

- To commemorate the 60th Anniversary of the Victory in World War II, the Consulate General conducted “The Year of Russia” in Houston in 2005 that consisted of a series (over 20) of high-profile events of different kinds (concerts, exhibits, conferences, etc.), including an exchange of official delegations of the City of Houston and the Moscow Government. This celebration received broad recognition in both countries and its success laid the foundation for a long-term relationship between Houston and Moscow. In the summer of 2007, Mayor Bill White led a trade mission to Russia, during which a protocol for cooperation has been signed. In that document, Houston and Moscow set out their intentions to promote bilateral interaction in the spheres of city management and planning, utilization of modern technologies, science, protection of the environment, transport, energy, construction, social services, education, youth problems, maintenance, and protection of cultural and historic values.

There are nine sister city relationships established between the region and Russia. These include five in Texas: Ivanovo – Plano, Kazan – College Station, Saratov – Dallas, Tyumen – Houston, Zvyozdny Gorodok – Nassau Bay; three in Oklahoma: Muravlenko – Claremore, Ulyanovsk – Oklahoma City, Zelenograd – Tulsa; and one in Missouri: Samara – St. Louis. Some of these cities are demonstrating really outstanding achievements.

For example, the annual Russian Winter Festival that the Dallas-Saratov group hosts became a well-known tradition in Dallas. The overall success on the inter-city level attracted the interests of the regional administration in Russia. The Governor of the Saratov Region Pavel Ipatov visited Texas in 2006 on an exploratory mission, which led to continued participation of regional authorities in this partnership. Muravlenko – Claremore is a vivid example of how strong economic ties can lead to a strong and lasting inter-community educational and cultural program. Houston and Tyumen are actively exploring opportunities to boost bilateral contacts, especially in the economic area, based on the similarity of city profiles. Both cities have national energy centers.

This year, the pool of official university partnerships expanded once again, when two new and very promising relationships offering various joint educational programs and diplomas got formed. Partnerships were created between the University of Texas (Austin) and the Moscow State Institute of International Relations, as well as the University of Houston and the Novosibirsk State University. As for educational partnerships already established, the University of Arkansas for Medical Sciences and the Volgograd State Medical University have had fine results in their cooperation in the areas of family medicine, telemedicine, and various forms of exchanges, providing opportunities for taking the relations to a higher, inter-regional level.

- Are there any difficulties in the path of increasing bilateral interaction?

- As our experience in the consular district tells us, of course, there are, starting from bilateral trade, which continues to be marked by the structural differences in the economic development of the two countries. Raw and basic materials constitute more than 80% of Russian imports into the United States. The range of the articles of trade in U.S. exports is also very limited - heavy industrial machinery and meat products dominate that mix. Bilateral trade in the region is also hurt by the remaining trade barriers against certain Russian products (sporting and hunting rifles, gear and ammunition, carbamide, ferrovanadium, metal silicon, magnesium, uranium products, steel plate, hot-rolled steel, and ammonium nitrate) and sanctions against some Russian companies that have been accused of dealings with Iran and Syria. There are known imperfections in the Russian investment climate, regulatory, and legal systems, as well as in the bilateral matters of protection of intellectual property rights, which are inevitable in any emerging and transitional system.

Another persisting issue is the stereotypical perception of life and business environment in Russia on the part of Americans, who believe that there is no rule of law, a prevalence of administrative and criminal economy management controls, a lack of respect for private property and contractual obligations, etc. This mindset is constantly fueled by the local media. It precludes many entrepreneurs from venturing into the “Wild East”. In turn, Russian businessmen “fear” the American market for its overregulated and overlitigated nature, and prefer to operate in the regions of Europe and Asia, which are geographically closer and psychologically less “intimidating.”

These misconceptions and failures to find out more about the true state of each other from a variety of sources are also quite visible in non-economic aspects of bilateral contacts or lack thereof.

- What are the functions of the Consulate General?

- The Consulate General is the national state office of international relations, which carries vested responsibilities on behalf of the Russian Federation within its consular district. It is an integral part of the Ministry of Foreign Affairs of the Russian Federation, and its main goals and functions are to protect the rights and interests of Russia, its citizens and legal entities; to promote trade‚ economic‚ cultural, and scientific relations between Russia and the United States; to deliver in the consular district the information about foreign and domestic policies of Russia, its socio-economic, and cultural life; to provide visa and passport services in accordance with the Russian law; to function as a notary public in registering the acts of civil status‚ instituting custody or tutelage‚ and validating documents; as well as to participate in the preparation for intergovernmental exchanges and visits of official delegations.

Since we are a very young consular mission, functioning for only three years, our main success I see in the fact that we were able to create quickly a highly-viable mechanism rendering a full array of services within our vested jurisdiction. We process a large amount of purely consular inquiries from both, Russian and U.S. citizens. We are adaptable, flexible, and “client-oriented” in most facets of our work. We are well-known in our consular district despite its daunting size and maintain a wide variety of contacts. We are deeply involved in promoting the systemic nature of bilateral relations through fostering long-term inter-organizational, inter-city, and inter-regional partnerships. We are also hopeful that we are gradually dissolving the misconception and biases through our continued efforts to expose the local public to various facets of Russia today - either through individual projects or themed series of events (such as “The Year of Russia”, “2007 - The Year of the Russian Language”, “200th Anniversary of the Establishment of Bilateral Diplomatic Relations”, etc.).

- How would you persuade an American businessman to invest in Russia?

- As I said, there are problems in the economic and regulatory development of Russia that raise caution among potential investors and traders. We all understand that the situation is not perfect. But that is only natural considering from what starting point in the 1990s we are moving away. In a short period of time Russia has changed dramatically and will continue to change. Allow me to illustrate that point with several examples.

In 1999, Russia was the world’s 22nd largest economy. In 2006 – already 11th, and could even rise to the 9th position in 2008, according to IMF forecasts. The dollar GDP in 2007 is projected to reach $1.3 trillion, which is 6.4 times higher than was reported in 1999. The population’s real disposable income doubled between 1999 and 2006, while the proportion of those leaving below subsistence level has fallen from 30% to 17%. Unemployment has been cut by 40%. Inflation has been reduced from 36% in 1999 to 8% (running) in 2007, with an ambitious long-term goal to bring it down to 3%. In 1999, Russia’s foreign debt amounted to more than 70% of the GDP. Today, it is only $47.8 billion, or just a third of what it was 8 years ago. In April of 2006, the Russian Industrial Leaders Index (RUXX) has been successfully launched on the New York Stock Exchange. More and more Russian companies are openly traded on NYSE or in London.

All these factors are ensuring a growing sense of stability in Russia, politically and economically. Russia is steadily becoming a fully-transparent and predictable player on the international trade arena with a vast, expanding, and “unsaturated” consumer market. It is also in the constant process of building its reputation as a reliable supplier. Russia is always perfecting its internal regulatory mechanisms.

All these trends do not go unnoticed among our European and Asian partners, who are very aggressively penetrating the Russian economy, frequently leaving our more wary American friends behind. At the same time, not all U.S. businesses are wary of Russia. The United States continuously ranks among the leaders in the volume of accumulated foreign investments in the Russian economy (2007 produced an almost historic increase). America is traditionally among the first five Russia’s trading partners.

Therefore, I encourage all readers of Russian-American Business magazine that are looking for investment or trade opportunities abroad to consider Russia seriously. Now is still a good time to enter this emerging, but rapidly maturing market. The Consulate General is looking forward to rendering any kind of assistance within its jurisdiction to the businessmen who decide to make this step, or who are only thinking about it. We welcome you all.