On December 10, the commodities producer and trader Glencore and the Qatar Investment Authority (QIA) closed a deal to acquire a 10.2 billion euro stake in Russia’s oil giant Rosneft, roughly 19.5 percent of the company’s shares. The deal — estimated to bring in $11.1 billion for the Russian budget — was a critical bridge to help cover a budget deficit estimated at $49 billion.
The deal has been mired in controversy; QIA put up 2.5 billion euros and Glencore fronted 300 million euros for a joint venture, QHG Shares Ltd., to close the deal. The rest was made up of margin guarantees from Glencore and various opaque financing deals from Italian bank Intesa and Russian banks Gazprombank and VTB. The labyrinthine means by which the Kremlin filled its budget holes have drawn the most scrutiny. Rosneft issued $10 billion in bonds to VTB as a means of filtering money into the budget before the deal was technically completed. The complexity of the paper trail obscures how QIA and Glencore have taken control of the 19.5 percent stake and who owns what.
The deal fits into a larger context of Russian attempts to improve ties with Qatar to secure financing for infrastructure projects, gain influence in OPEC, and also leverage the Gulf producer’s interest in Tajikistan. Glencore happens to play a key role in Tajikistan as well, suggesting that Russia may pursue a peripheral benefit from Rosneft’s privatization in its relations with the Central Asian state.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Russia’s Hope for Qatari Infrastructure Investment
Since the annexation of Crimea, Russia has sought non-Western partners to reduce its financial dependence on Western firms to raise equity, issue debt, and finance critical projects, particularly infrastructure. In May 2014, QIA entered into a partnership with the Russian Direct Investment Fund (RDIF), a $10 billion platform to guide international investment. RDIF has taken the lead in financing critical infrastructure projects in Russia’s Far East. QIA offered $2 billion in financing through Qatar Holding at the time, though only $500 million in investments have since materialized. At the end of last July, QIA bought a 24.99 percent stake in St. Petersburg’s Pulkovo International Airport to QIA for around 239 million euros with the help of the RDIF.
The Pulkovo deal signaled that Qatari investors are looking for chances to get into the Russian market in a favorable climate: Russia is in serious need of financing. Likely due to political disagreements and Qatar’s balancing act with the West, investments have moved slowly aside from the initial partnership decision in 2014 and some small-scale deals aside from Pulkovo. But December’s Rosneft privatization has opened up Russia’s infrastructure and energy sectors to greater investment from QIA and Glencore.
Rosneft agreed to create a joint platform to invest in Russian energy projects with both QIA and Glencore as part of the privatization. That platform has, as yet, not been used. But on January 25, QIA announced another $2 billion in investments in Russia would be made, some through the RDIF. As of February 20, Russian news service TASS announced that QIA had made up to $2 billion of investments into projects with privately-owned gas producer Novatek, Russia’s leading firm for Arctic Liquefied Natural Gas (LNG) production. Qatar — the world’s largest LNG exporter — is targeting international investments to escape domestic constraints on its production while also undercutting Russian Gazprom’s monopolist position as Russia’s sole natural gas exporter. The Kremlin is by no means unified in its support of Gazprom, something that Qatar is exploiting.
On Glencore’s part, the Anglo-Swiss firm secured a supply deal from Rosneft worth 220,000 barrels of oil per day. The deal boosts Glencore in its competition with Swiss trader Trafigura, the world’s largest trader of Russian crude and important player in Rosneft’s acquisition of Indian firm Essar Oil Ltd. Glencore already owns 25 percent of small Russian producer Russneft, but is seeking to acquire more production assets in Russia. These closer ties may bear fruit for Russia as it seeks Tajikistan’s accession to the Eurasian Economic Union (EEU).
How to Snare an Autocrat
Securing Tajikistan’s membership in the EEU is integral to Russia’s strategy in Central Asia. Doing so helps formally secure Russia’s sphere of influence with all Central Asian states bordering Xinjiang as Chinese investment pours into the region. International investors are incredibly wary of the business climate in Tajikistan, giving Russia outsized influence as it courts the few players willing to bear the risks. QIA and Glencore play vital roles for Tajikistan’s economy and Rahmon’s regime, making good relations with both a politically valuable card to play in Russia’s pursuit of Dushanbe’s commitment to the EEU.
Qatar has targeted Tajikistan for symbolic investments to increase its profile in Central Asia. Back in 2007, the two countries concluded a bilateral investment deal to open up Tajikistan’s economy to Qatari financial interests. In 2009, Qatar offered $70 million to build the largest mosque in the post-Soviet space in Dushanbe and has since offered financing on occasion for small projects. Last year, Tajikistan expressed serious interest in deepening ties with the Qatar International Islamic Bank (QIIB) as a means of generating interest among Islamic banks and investors in the Gulf. Foreign direct investment into Tajikistan plummeted after 2008 and has not recovered. Chinese investment has risen at the same time Russian investment has declined, making alternative sources much more politically important. Rahmon’s regime does not want to remain stuck between the two countries, but remains an unappealing destination for international investors.
On February 5, President Emomali Rahmon visited Doha and met Sheikh Abdulla bin Mohammed bin Saud Al Thani, CEO of QIA, in hopes of securing investments in energy, agriculture, tourism, and mining while laying the groundwork for future joint ventures. Timing is everything. A few days later, a key Sino-Russian bridge project connecting Blagoveschensk and Heihe backed by Qatari money through the RDIF finalized financing. The project has a crucial role in a proposed economic corridor running through Russia, Mongolia, and northeastern China and provides a conduit for Russian mineral firms to sell raw materials to Chinese consumers, evidence of Sino-Russian economic cooperation that is little comfort to Tajikistan.
Talco — Tajikistan’s state-owned aluminum monopoly — is responsible for a considerable majority of the regime’s hard currency earnings and has been directly controlled by Rahmon’s family since 2004, remaining the primary vehicle through which the regime has pilfered the economy for its own enrichment. Tajikistan is currently facing a hard currency crisis, as the banking system has come under incredible strain from poor economic performance, low commodity prices, and a collapse in aluminum exports. Where aluminum accounted for roughly 60 percent of Tajikistan’s exports in 2012, that figure plummeted to 26 percent in 2014. Production remains low with projected increases likely a result of optimistic bureaucrats trying to minimize the depth of the country’s economic crisis as Tajikistan angles for loans from the EBRD, bailouts from the IMF, and financing from other international multilateral lenders to survive.
Glencore is Talco’s primary supplier of alumina, a necessary ingredient for aluminum production. Talco signed a supply deal with Glencore to the tune of 200,000 tons of alumina last April. Glencore is the primary firm trading Talco’s production abroad, selling nearly three-quarters of Tajikistan’s production to Turkey as of 2014 and almost all the rest to Italy. The picture is grim for Talco and the regime, as there is a strong correlation between aluminum prices and the solvency of Tajikistan’s companies in general. For now, China is holding up aluminum prices but its demand — by far the largest factor on the world market — is set to slow later this year, saturated by overproduction. Turkey, Tajikistan’s primary export market, is producing more aluminum for domestic consumption. It’s unclear where any increase in production would actually be traded.
Glencore also owns 8.75 percent of Russian aluminum giant Rusal. Rusal recently abandoned Tajikistan’s market as a result of unfriendly legal decisions on the part of Tajikistan’s supreme court. The suit was filed over an alumina supply deal from a trader owned by Rusal, supply that was replaced by Glencore. Russian gas giant Gazprom has also retreated from exploring potential reserves in Tajikistan. Glencore has expressed interest in helping Talco modernize its plants since 2014, at the same time Rusal’s relationships with Talco collapsed. Now more than ever, the efficiency of Talco’s production is critical to the Rahmon’s survival given the lack of hard currency in the country.
As such, Russia’s Rosneft sale brought better ties with two key players — Glencore and QIA — at a very sensitive moment for Rahmon’s regime.
Putin’s Upcoming Visit to Dushanbe
At the end of January, the Kremlin put out a statement that President Vladimir Putin would soon visit Kyrgyzstan and Tajikistan. The announcement came just a few days after Qatar pledged further investments with RDIF. Now that Rusal and Gazprom have left Tajikistan, Putin will certainly try to exploit the role Glencore plays in supplying Rahmon’s primary means of dispensing money and favors. QIA will also undoubtedly come up as the Qatari investment vehicle can give Rahmon political cover. Domestic elites and a public ambivalent about accession to the EEU without concessions from Russia can point to Qatari investment as a balancing influence, though that investment may in fact be sanctioned by Russia.
Thus far, Rahmon has attempted to wait Russia out on the EEU issue, seeking legal protections for Tajik migrant laborers in Russia and greater admissions quotas for Tajik students in Russian universities. Remittances from migrant laborers were worth more than half of Tajikistan’s GDP in 2014. As a result, Russia has repeatedly threatened to end all flights from Tajikistan to Russian airspace as a stick to coerce Rahmon to get in line and drop his demands. The Rosneft deal has improved the Kremlin’s ties to another stick, Glencore, and a carrot, QIA.
The Kremlin’s ties with QIA and Glencore give it yet more leverage to force Tajikistan’s accession to the EEU. The fact that VTB — one of the primary handlers of Tajikistan’s currency accounts — played a large deal in brokering the Rosneft deal should also not go unnoticed. Putin has both economic and kleptocratic mechanisms to pick up the pace of EEU accession talks. Announcements after his upcoming visit to Dushanbe will likely reveal a more compliant Rahmon.
Nicholas Trickett currently works at a think tank in Washington D.C. He is finishing an M.A. in Eurasian studies through the European University at St. Petersburg with a focus on energy security and Russian foreign policy.