13.05.07
Is it Time for Estonian Sanctions?
By Yevgeny Primakov
Why has Russia not imposed large-scale economic sanctions in response to the blasphemous behavior of the Estonian authorities? On the eve of VE Day, Tallinn defiantly removed its Bronze Soldier memorial statue - dedicated to Soviet soldiers who were interred in the capital city's center - to an outlying military cemetery. Why, after Estonian police ruthlessly dealt with young ethnic Russians who were protesting against this move, have we not blocked Estonian sea ports, which depend on shipments from, and cargo imports to, Russia?

Not so long ago, I read an article by K. E. Korostayeva, a senior research associate at the Russian Institute of Strategic Studies (see RISS Analitichesky almanakh #7, 2007). Based on the information provided in the article, I would like to share with our readers some conclusions that I trust will help them better understand the prevailing situation.

Conclusion 1. The most modern transport infrastructure in the Baltic region, including the Tallinn port, the largest in the area, was built during the Soviet era, primarily in the 1980s.

Conclusion 2. Following the disintegration of the Soviet Union, the port's cargo turnover fell drastically, but by the mid-1990s the "Soviet level" was considerably surpassed. The use of market mechanisms, foreign capital, and the transfer or lease of port installations to foreign companies helped to modernize and build new facilities at the Tallinn port - e.g., oil, mineral fertilizer, and cargo transport container terminals, among other things.

Conclusion 3. The launch of the St. Petersburg-based mineral fertilizer handling complex, a new transshipment terminal, the first section of the Primorsk sea port, and the Ust Luga coal terminal recently did have some impact, but only on cargo structure. However, the volume of cargo turnover at the Tallinn port was unaffected. Even after oil transit volumes slowed, Tallinn retained its status as one of the largest ports in the Baltic region. At the same time, the groundwork was laid for substantial expansion in the volume of coal, grain, dry cargo and metal transit operations. A logistics center was created as part of a free trade economic zone, with export-oriented manufacturing enterprises using imported raw materials. Work is under way to build deep water berths, pipeline branches and links, and oil storage facilities. Rail cargo handling capacity is growing, while cargo processing time is being reduced.

Conclusion 4. Terminals and other port installations are owned not so much by Estonians as by foreign [including Russian] companies. Importantly, Russian companies are clearly not at the bottom of the list. For example, a new oil terminal, comprised of three berth facilities, each 700 meters long, and with a transshipment capacity of 5 million metric tons of coal a year, is owned on a 50:50 basis by the Russian concern Kuzbass Razrez Ugol and the Tallinn port. The terminal is operated by a concern set up by a Russian company. Russian business people have a 50 percent stake in Estonia's most promising port, Sillamae, which was built at the same time when new port installations went into operation in the Leningrad Region [surrounding but not including the city of St. Petersburg]. Sillamae is located in a warm water part of the Baltic Sea, 25 km from the Russian border. It is not only the largest private port in the Baltic region but also [like the Tallinn port] home to a free trade economic zone. The oil terminal is operating at full capacity.

Russian companies also hold strong positions on the crude and oil derivatives transit market in Estonia. Russia's Transoil, through a subsidiary, owns nine railroads. The entire oil derivatives transport chain is controlled by the Severstaltrans Group, which holds a 70 percent stake in Estonia's Spacecom. [The Severstaltrans Group recently made a number of acquisitions in northwestern Russia and in Estonia, which prompted media speculation that the company is acting on behalf of Kremlin interests. In March, it closed a deal to buy the St. Petersburg-based Petrolesport (PLP) stevedore company and is also planning an investment program to increase the volume of container operations to 1.5-2 million 20-foot equivalent units (TEU) a year. - Ed.]

The above is not a complete list. But it is rather indicative. Russia's business presence in Estonia is easy to explain: There is a customs free transit system; taxes are minimal, if not zero, as at Sillamae; service quality standards are high; prices are lower than in neighboring Finland; port expenses are lower than in St. Petersburg; there are no delays in rail or warehouse services, and vessels are loaded and unloaded strictly according to schedule. Add here the fact that trade and, in a broader sense, economic relations with Russia, are controlled by Estonia's Russian speaking residents.

These are factors for consideration in deciding on the scale of economic sanctions against Estonia, which I believe its current government richly deserves. In a free market economy, it is naяve to expect business people to sacrifice their commercial interests to patriotism. Yet they might exert - not least through their Estonian partners - influence on the Estonian authorities who have gone over the top in their anti-Russian policy.

But there are also other ways of displaying our response to Tallinn.


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