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
|