LatinFinance - March/April 2013 - 36

South–South report: Russia

Hand in hand
By Elliot Wilson

D

espite their cultural disparities,
and minimal trade in recent years,
economic relations between
Russia and Latin America are on the rise
for the first time since the Soviet Union’s
collapse.
Then, Moscow’s influence south of the
Rio Grande was politically tilted. Russian
leaders funded regimes from Havana
to Santiago, largely to undermine the
United States.
Under president Vladimir Putin,
however, Russia is more petrostate than
ideologue. So it is little surprise that
most trade between Moscow and South
America involves energy-heavy deals.
One major partnership is between
Russian and Venezuelan state energy
companies to develop the Junin 6 block
on Venezuela’s eastern Orinoco River.
Rosneft is to take over as chief operator
of the project, which is worth as much
as $50 billion and involves PDVSA,
Gazprom and Lukoil, among others.
The Russian partners are likely to
spend up to $17.6 billion over the next
eight years on the project. Rosneft
will put up more than half of that,
Venezuelan energy minister and PDVSA
chief executive Rafael Ramírez has said.
If all goes to plan, total oil output from
Russia’s investments in the Junin 6 block
should nearly quintuple to 1.123 million
barrels a day by 2021.
The Rosneft deal stands out for its
size, but it is not alone. In October 2011,
TNK-BP, now 50% owned by Rosneft, paid
$1.25 billion for a 45% stake in 21 blocks
in Brazil’s Solimões Basin.

Growth potential

All the same, Russian-Latin American
trade is still small. Bilateral trade between
Russia and Latin America in 2012 was
around 15 billion roubles ($500 million) –

36 LatinFinance March/April 2013

Russian energy companies and banks have started venturing into
Latin America. Despite their aspirations, the extent of the new
relationship remains in doubt

From Russia with love: a new era for bilateral ties?
around 2% of Russia’s foreign investment
flows, says Grigory Birg, head of research
at Moscow-based independent research
firm Investcafe.
“The potential for growth in trade is
there,” said Birg, before the Rosneft-led
PDVSA deal was signed.
During Dmitry Medvedev’s presidency
in the five years to May 2012, Russia tried
to diversify. In May 2011, Russian steel
giant Severstal bought a 25% stake in
Brazil’s SPG Mineração mining firm for
$49 million.
But efforts to sell military weapons to
Peru and Argentina and nuclear power
technology to Brazil largely failed. Putin’s
third presidential term has been notable

for its reversion to oil and gas.
Given Russia’s economic dependence
on that industry, it makes sense that
most of the country’s investment in Latin
America is in the energy sector, says Birg.
But there are signs of growing
bilateral alliances in other areas. VTB
Capital, Russia’s largest investment
house, announced a cooperation
agreement with Brazil’s BTG Pactual last
June. The two agreed to “expand and
establish a long-term presence in two of
the world’s most promising regions”.
They will look at potential alliances
in M&A advice, asset and wealth
management, private equity, and
proprietary investments. LF
LatinFinance - March/April 2013

Table of Contents for the Digital Edition of LatinFinance - March/April 2013
