Here's How Germany And Russia Are Forming The World's New Nexus Of Power

medvedev merkel

Photo: wikimedia

Last week, Chancellor Angela Merkel visited Russian President Medvedev for a day, bringing high officials and CEOs of selected German companies with her. It was the 12th official meeting of the German and Russian governments.And, despite continuous German warnings on Human Rights issues – Merkel mentioned the unresolved murder on the Chechen Human Rights activist Natalya Estemirova – German-Russian relations seem to be going great.

During this visit, multi-billion deals were struck between the two countries’ companies. In previous years, other deals and agreements have been signed between the two countries, not always without controversy.

The Nord Stream Pipeline

The construction of the Nord Stream Pipeline that will connect Russia and Germany started in April 2010. The company that works on the project, later named Nord Stream AG, was established under Gerhard Schröder's Chancellorship in 2005 (later on, Schröder actually became Nordstream AG's head of the shareholder's committee). The shareholders of the company's International Consortium are Russian State-owned gas company Gazprom, the German companies BASF SE/Wintershall Holding GmbH and E.ON Ruhrgas AG, as well as the Dutch N.V. Nederlandse Gasunie and the French GDF Suez S.A.

Deal cost: All together, the shareholders are investing 7.4 billion euros ($9.6 billion dollars) in the project.

Why does this matter: The 1,224-km-long (750 miles) pipeline will run through the Baltic Sea, giving Germany direct access to Russian gas, while also reinforcing Europe's dependence to Russia's reserves.

Controversies around the Nabucco Pipeline

Angela Merkel reaffirmed the necessity of the Nord Stream Pipeline in her recent visit to Russia. However, she also asserted that the Nabucco Pipeline between Turkey and Austria that is being built without Russia, is also of great importance for Europe. Recently, German newspaper Handelsblatt reported Gazprom had tried to impair the Nabucco project, by asking German energy company RWE to stop investing into the project and rather work with Gazprom on the South Stream Pipeline that should run between Russia and Italy via Serbia. The bid was unsuccessful, but shows the tension, economic and geopolitical, within the industry.

Why does this matter: The Nabucco pipeline would help diminish Europe's dependence on Russian gas.

A iron horse deal for Siemens

Siemens CEO Peter Löscher signed a deal with the State owned Russian Railways to provide the Russian company with about 200 regional trains. Löscher had accompanied Angela Merkel during her visit to Russian president Medvedev last week to Yekaterinburg to officially approve the deal.

Deal cost: 2.2 billion euros ($2.9 billion)

Why does this matter: The deal represents an immense opening for the German company within the Russian market. There are also talks about striking a deal about wind energy technology.

Siemens will also invest in Russia's new Silicon Valley

Siemens also agreed to participate in the technology hub project in Skolkovo near Moscow, by building a research centre. The Siemens leadership would apparently also be part of the management team of the project. President Medvedev's plan is to build a research area in the Moscow suburb Skolkovo, comparable to the American Silicon Valley, that would specialize in telecommunication, information technology, energy efficiency and medicine techniques.

Deal cost: not disclosed

Why does this matter: President Medvedev pledged to modernize Russia and to invest increasingly in research and high technology, to compete with other countries like the U.S. on that level. During Angela Merkel's visit to Russia, he was eager to encourage German companies to participate in the Russian modernization process.

A German company will operate Russia's second largest airport

Fraport, the German transport company that operates the Frankfurt airport, announced in April 2010 that it will be in charge of modernizing and operating the Saint Petersburg-Pulkovo Airport. The investment will be used at first to construct a new passenger terminal scheduled for 2013 and to modernize other airport structures. Fraport is part of the Northern Capital Gateway consortium, which includes the Russian VTB Bank which a stake 57.5 per cent, while Fraport has 35.5 per cent stake. Fraport's financial involvement will lie at 170 million euros ($220 million).

Deal cost: 1 billion euros ($1.3 billion)

Why does this matter: The German company will operate the second-largest Russian airport for the next 30 years, after negotiating two years over the project. It gives the company more international presence, in a country where tourism is growing, especially in Saint Petersburg. The FAZ recently reported that international deals now make up about a third of the company's earnings before taxes. According to statistics of the Russian federal agency for tourism, Germans make up 16% of tourism in Russia, one of the biggest tourist groups in the country.

Photo: Wikimedia Commons

A Russian businessman bought a needy German shipyard

In August 2009, Vitaly Yusufov, a Russian businessman and the son of a former energy minister, struck a deal to buy the Wadan shipyards, located in Merkel's district, the Baltic ports of North Germany, and invest in them. The shipyards had filed insolvency in June 2009. It was the peak of the economic crisis and also not a good time for the shipbuilding industry. Yusufov said he was betting on lucrative orders from Russia - especially niche demands, like icebreakers. The region's state government was only too happy to save a couple of thousand jobs. The company has now changed its name to Nordic Yards.

Deal cost: $56.3 million

Why does this matter: Thousands of German jobs got saved in a region that relies heavily on shipbuilding to curb unemployment and Yusufov now owns Germany's fifth biggest shipbuilder.

Airbus to be Aeroflot's wings

Airbus, a unit of the European Aeronautic and defence Company, has just struck a deal with Aeroflot, the Russian airlines, for the order of eleven A330-300 passenger aeroplanes.

Deal cost: about $2.34 billion

Why does this matter: Aeroflot is now the first Russian client of the European company that has sites in several European countries. The biggest Airbus sites are in France and Germany.

Loans for Russian SMEs

The German Kfw development bank and the Russian VEB Bank signed an agreement in July 2010 to improve the modernization of small and medium-sized enterprises in Russia. A system of program loans is planned in order to help the Russian companies. The agreement was made on the basis of the German-Russian Program for Innovation and Modernization of SMEs that was settled in April 2010.

Cost of the deal: 100 million euros ($128.5 million) in July and 200 million euros ($257 million) earlier this year.

Why does this matter: Not only will this possibly boost Russian economy, the German side expects benefits on its foreign trade activities.

Chip maker deal still in discussion

Deals are not always that simple to strike. Since the end of 2009, Russia wanted a 29 per cent stake in Infineon, a German chip maker, through Sistema, a Russian holding company. Talks with the German government are still ongoing between the companies, although Infineon itself denies being in any talks.

Why does this matter: President Medvedev wants Russia to diversify by focusing not only on energy and natural resources, but also on high technology. For this deal, Germany is showing resistance, because of a federal law that forbids foreign investors to take over more than 23 per cent of a German company.

2011: A German-Russian Year Of Science

During Angela Merkel's trip, the German and the Russian education and research minister announced that 2011 was the 'German-Russian year of science'. This means that researchers, scientists, managers and scholars from both countries will meet in conferences and other events to talk about potential projects to work on, especially in the high technology sector.

Why does this matter: Russia and the European Union decided to implement a modernization partnership in June 2010 and Medvedev said that Germany is 'the strategic key partner for Russia' in that regard.

The German-Russian Energy agency

The Russian-German Energy Agency (Rudea) started its activities in late April 2009. President Medvedev and Chancellor Merkel had taken the decision to create such an agency the year before. The goal is to achieve enhanced cooperation in matter of energy efficiency between the countries and, in particular, to bring more energy efficiency technology to Russia. Both the German Energy Agency and the Russian Energy Carbon Fund are in the board of management and German companies are found on the advisory board of the agency, like Siemens, BASF or Eon Ruhrgas, as well as German and Russian Ministries and representatives.

Why does this matter: Energy efficiency initiatives have been launched in Russia, and German companies are involved with multi-million deals in many of them. For example, a chemical facility in the Urals, Chimmash, needs a complete renewal of its energy supply system, also leading to a change in the heating system of a nearby housing development. And German companies like the Scholze Group or Imtech AG are involved in the project, with 'three-digit million investments', as Stephan Kohler, the Chef of the German Energy Agency said to the Handelsblatt.

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