Oil and the economy of russia from the late tsarist to the post soviet period
Oil and the Economy of Russia
This book examines the development of the Russian economy from tsarist times to the present through the lens of the oil industry. It considers the role of the state, business-state relations, foreign participation, enterprise performance and technology. Besides providing much rich detail on the changing nature of the oil industry, the book also puts forward important conclusions, including the fact that in the late nineteenth century private enterprise rather than the state was the principal driver of economic development, and that after the collapse of the Soviet Union incumbent managers were more effective in running their companies than financier entrants, whose main concern was short-term gain. Nat Moser has over 20 years’ experience analysing the Russian oil sector from an academic and investment perspective. He completed his doctorate at the University of Manchester, and post-doctoral research at University College London and has advised some of the largest foreign equity investors into the sector. He is currently a director of two companies working in the field of oil and gas exploration and production.
BASEES/Routledge Series on Russian and East European
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Editorial Committee: Roy Allison, St Antony’s College, Oxford Birgit Beumers, Department of Theatre, Film and Television Studies, University of Aberystwyth Richard Connolly, Centre for Russian and East European Studies, University of Birmingham Terry Cox, Department of Central and East European Studies, University of Glasgow Peter Duncan, School of Slavonic and East European Studies, University College London Zoe Knox, School of History, University of Leicester Rosalind Marsh, Department of European Studies and Modern Languages, University of Bath David Moon, Department of History, University of York Hilary Pilkington, Department of Sociology, University of Manchester Graham Timmins, Department of Politics, University of Birmingham Stephen White, Department of Politics, University of Glasgow
Founding Editorial Committee Member: George Blazyca, Centre for Contemporary European Studies, University of Paisley This series is published on behalf of BASEES (the British Association for Slavonic and East European Studies). The series comprises original, high-quality, researchlevel work by both new and established scholars on all aspects of Russian, Soviet, post-Soviet and East European Studies in humanities and social science subjects. 118. Russia’s Economy in an Epoch of Turbulence Crises and Lessons Vladimir Mau 119. Oil and the Economy of Russia From the Late-Tsarist to the Post-Soviet Period Nat Moser 120. The South Caucasus Security, Energy and Europeanization Edited by Meliha B. Altunisik and Oktay F. Tanrisever
Oil and the Economy of Russia From the Late-Tsarist to the Post-Soviet Period Nat Moser
List of figures List of tables Abbreviations and acronyms Note on measurement Preface
ix xi xii xiii xiv
Introduction The oil industry: main features and characteristics 1 Conceptual terminology 5 Structure, methodology and sources 7
The late-tsarist oil industry, 1861–1917 Late-tsarist economy overview 11 Late-tsarist oil industry overview 13 Role of the state 16 Foreign participation 29 Monopolies, cartels and business-state relations 33 Technology 40
The Soviet oil industry, 1917–1991 Soviet economy overview 51 Soviet oil industry overview 55 Enterprise management 60 Inefficiency of resource use 66 Technology 70
The post-Soviet oil industry, 1991–2017 Post-Soviet economy overview 87 Post-Soviet oil industry overview 94
viii Contents The state and the oil industry 99 Business-state relations 102 Foreign participation 108 Enterprise performance 114 5
Appendix Literature review Bibliography Interviews conducted
135 149 155 166
2.1 Russian oil production 1863–1917 2.2 US and Russian oil production 1870–1916 2.3 Russian oil production 1863–1880 2.4 Russian oil production 1877–1916 2.5 US oil production 1877–1916 2.6 Russian oil output in 1890 by producer 2.7 Russian oil output in 1913 by producer 3.1 Soviet GNP 1945–1991 3.2 Soviet oil production 1917–1945 3.3 Soviet oil production 1917–1940 3.4 Geographical distribution of Soviet oil production in 1938 3.5 Soviet oil production 1945–1991 3.6 Soviet oil production 1945–1991 3.7 Geographical distribution of Soviet oil production in 1950 3.8 Geographical distribution of Soviet oil production in 1980 4.1 Russian GDP 1992–2015 4.2 Russian budget balance 1992–2015 4.3 Oil price 1992–2015 4.4 Russian current account 1992–2015 4.5 Russian international reserves 1992–2016 4.6 Foreign direct investment into Russia 1992–2015 4.7 Russian oil production 1990–2015 4.8 Russian oil production 1990–2015 4.9 Russian oil production by company 1992–1999 4.10 Change in production between 1992 and 1999 by ownership type 4.11 Russian oil production by company 1999–2004 4.12 Change in production between 1999 and 2004 by ownership type
x Figures 4.13 Russian oil production by company 1992–2004 4.14 Change in production between 1992 and 2004 by ownership type 4.15 Russian oil production by company 2005–2012 4.16 Change in production between 2005 and 2012 by ownership type 4.17 Russian oil production by company 2013–2015 4.18 Change in production between 2013 and 2015 by ownership type
120 121 121 122 123 123
2.1 Key industrial and economic indicators for five largest economies, 1861 and 1913 2.2 Oil-field licence auction lot details and results, 1872 3.1 Soviet and Western oil field reserve classification 4.1 Oil and gas businessmen with government positions in the 1990s 4.2 Oil and gas industry leaders with connections to Putin from before he became President A.1 Russian oil production 1863–1917 A.2 Russian state treasury income from the oil and salt businesses 1813–1873 A.3 Major oil producers in 1890 A.4 Major oil producers in 1913 A.5 Soviet oil production 1917–1992 A.6 Geographical distribution of Soviet oil production in 1938 A.7 Geographical distribution of Soviet oil production in 1950 A.8 Geographical distribution of Soviet oil production in 1980 A.9 Post-Soviet Russian oil industry chronology 1991–2016 A.10 Russian oil industry ownership structure in 1999 A.11 Russian oil industry and the loans-for-shares scheme 1995–1997 A.12 Russian oil production 1987–2015 A.13 Russian crude oil and condensate production by company 1992–2004 A.14 Russian crude oil and condensate production by company 2005–2015
AARAlfa-Access-Renova bblbarrel boe barrel of oil equivalent capex capital expenditure CEO Chief Executive Officer COO Chief Operating Officer d. file (delo) f. collection (fond) GARF State Archive of the Russian Federation GKI State Committee for the Management of State Property GKZ State Commission on Mineral Reserves Gosplan State Planning Committee IOCs International oil companies JV Joint venture MET Mineral Extraction Tax Minfin Ministry of Finance Mingeo Ministry of Geology MoNR Ministry of Natural Resources OFS Oil-field service OGPU/KGB/FSB State security service op. catalogue (opis) PSA Production-sharing agreement RF Russian Federation Rosnedra Federal Agency for Subsoil Use Rosprirodnazor Federal Service for the Supervision of Natural Resources RSFSR Russian Soviet Federative Socialist Republic T-VOPartnership TNK Tyumen Oil Company TsGIAL Central State Historical Archive, Leningrad UK United Kingdom of Great Britain and Northern Ireland US United States of America USSR Union of Soviet Socialist Republics or Soviet Union
Note on measurement
Figures measuring oil production and refined products in this book are in metric tons. I use the English spelling “tons,” rather than the French “tonnes.” In latetsarist Russia, oil was measured in puds (1 metric ton = 61 puds), and I have converted these figures into metric tons. In the Soviet Union, oil was measured in metric tons, and this practice has continued in post-Soviet Russia. In the West, oil is measured in barrels (1 metric ton = 7.3 barrels), and some of the figures in this study comparing Russian and international oil companies are in barrels. The figures in metric tons in this book should not to be confused with British long tons and US short tons which are based on imperial weights, and are somewhat more and less, respectively, than metric tons.
This book examines the development of the Russian economy from the late-tsarist to the post-Soviet period through the lens of the oil industry. As well as explaining Russia’s past, the findings are important for understanding the country’s future path of economic development. The book is based upon my engagement with the Russian oil industry over the last 20 years through both academic and business work. Underpinning it is the academic work I did for my MPhil thesis at Oxford University in 1995–1996, my PhD at Manchester University in 2005–2009, and my post-doc at University College London in 2012–2013. My business work – which relates to investment in the oil and gas sector – gave me the opportunity to live in Moscow in 1997– 2004, and be a frequent visitor up until 2014, where I met many senior oil company managers and executives. It also enabled me to travel extensively in the oil regions of the Former Soviet Union including the major oil-field towns in West Siberia and the Volga-Urals, and some of the smaller ones in central Ukraine, and to talk there with drillers, geologists, geophysicists and engineers. At the heart of this book are two dozen or so of interviews with oil industry participants conducted since 1995, and extensive oil industry data that I collected throughout the period. The book also benefits from a rich secondary literature – in both Russian and English, and relevant archival research I undertook in Moscow. In hindsight, I was fortunate to be researching the sector, interviewing industry participants, collecting data, and travelling across Russia at a time when the country was open to the West, and attracting substantial investment from it. The deterioration in relations between Russia and the West since 2014 has underlined to me that embarking on this project today, rather than 20 years ago, would be more difficult. The wave of Western investment into the Russian oil industry that occurred from the early 1990s opened doors for me to see at first-hand, and even be a participant in, certain important events. Over the years, a lot of people have assisted me with the work that went into this book. My greatest thanks go to my mother Caroline, my father Brian, my wife Olya, my brother Titus, my father-in-law Alexander Ivlev, my step-father Peter Sollis, my PhD supervisor Peter Gatrell, my MPhil supervisor Chris Davis, and my colleague at UCL Pete Duncan. I am also very grateful to: Rudiger Ahrend, Dmitri Avdeev, Theo Balderston, Thomas Blake, Olga Boltenko, Mark Bond,
Preface xv Constantine Brancovan, Alexander Burgansky, Euan Craik, William Flemming, Nellie Galiauv, Till Geiger, Chris Gerry, Thane Gustafson, Nigel Gould -Davies, Liam Halligan, Nick Halliwell, Peter Halloran, Mike Haywood, Russell Harvey, Jim Henderson, David Hoffman, Elena Krasnitskaya, Nick Latta, Oleg Maximov, Ivan Mazalov, Tav Morgan, Vadim Murzak, Roland Nash, Patrick Newman, Alexander Nazarov, Peter Oppenheimer, Slavo Radosevic, Elisabeth Schimpfossl, Robert Skidelsky, Peter Sowden, Rab Speirs, Marat Terterov, Sergei Tischenko, Gardner Thompson, Vakhtang Vardanyan and Mike Winn. Finally, I’d like to thank all my interviewees, and the UK Economic and Social Research Council for funding both my PhD and post-doc. Any mistakes in this book are the responsibility of myself alone.
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Russia1 has been a major force in the global oil industry since the 1870s – just a decade after the industry first developed in the US – and it has been the largest oil producer in the world at various points since, including the 1900s and 1980s, rivalled only by the US, and more recently Saudi Arabia.2 Within Russia, the oil industry became an important economic sector in the late nineteenth century, and has retained that position ever since. It provides a direct support to the domestic economy through cheap fuel, and is a vital source of government revenue and export earnings. The industry played a significant part in the development of large-scale modern enterprise in the country, and is central to relations between business and the state, with oil magnates ranking amongst the country’s most powerful businessmen in both the late-tsarist and post-Soviet periods. This book looks at the development of the Russian economy since the 1860s, and the main debates about this, through the perspective of the oil sector. These debates relate to several overlapping themes: the role of the state; business-state relations; foreign participation; enterprise performance; and technology. The book also identifies some of the major continuities and discontinuities within these themes in different periods of Russian history, and provides an international context through a comparison with developments in the oil industry in the US – another geographically large and resource-rich country. In addition – though with some gaps – the book provides a study of the development of the oil industry in Russia right from its inception through to the present day. In this introduction, I consider the features and characteristics of the oil industry, and assess how relevant the sector is for making general conclusions about industrial development in Russia or elsewhere. I then explain the main conceptual terminology that I use in the book – important for understanding long-run economic development in Russia. Lastly, I outline the structure of the book and the individual chapters, and briefly discuss the methodology and sources.
The oil industry: main features and characteristics An introduction to the oil industry Oil consists of hydrocarbon molecules. It is generally accepted that most oil deposits were formed from decomposed plankton and algae. The deeper and
2 Introduction longer the burial of this organic material, the lighter and less viscous (thick) the oil. Oil reservoirs are mostly found in sedimentary rock such as sandstone with the hydrocarbons occupying the tiny pores and fractures within the rock. Oil is found in several different geological layers beneath the surface of the earth, with the deepest reserves located at a depth of, in some cases, more than 5km.3 The main geological layers in Russia where oil has been found are the Permian, Jurassic and Devonian which range from a few hundred metres to around 3km in depth. Oil-based products have been present in history for many centuries with uses ranging from healing ointments to combustible weapons of war. There are many reported instances of oil seeps around the world where black, tar-like oil oozed from sedimentary rocks exposed at the surface, and this was gathered by local people. However, it was not until the second-half of the nineteenth century that something more closely resembling a modern “industry” began to develop. This occurred simultaneously in the US and Russia, and in Galicia and Romania – and was based upon the collection of crude oil and its “cooking” or basic refining to extract kerosene, which was then used in cheaply manufactured lamps. Initially, production was from bailing the seepage from shallow wells dug in the ground. After the introduction of drilling – first in the US in 1859 – larger underground reservoirs began to be exploited.4 Advances in oil-burning boilers in the 1860s and 1870s resulted in increased demand for fuel oil, until then a low-grade by-product (residual) of refining, for use in locomotives, steamboats and metallurgical furnaces.5 At the start of the twentieth century, the growing popularity of the automobile powered by an internal combustion engine resulted in increasing demand for gasoline (petrol), a midgrade product of refining. The advent of automobiles proved fortuitous for the industry because it came at just the time that the spread of electricity reduced the demand for kerosene for lighting, thus giving the industry an important new source of demand.6 Although, today we are looking at the possibility of electric battery-powered cars replacing those powered by gasoline and diesel. The importance of technology is a recurring theme for the oil industry. Throughout its history, technological advances have played a crucial role in changing the nature of the industry through opening up new opportunities, and changing the economics of existing practices. In exploration and production, the introduction of drilling in the late nineteenth century allowed the exploitation of underground reservoirs, while in the twentieth century, advances in geophysical analysis and reservoir management techniques enabled more accurate drilling, and a greater proportion of oil to be extracted from a reservoir. Since the beginning of this century, the combination of hydraulic fracturing and horizontal drilling has allowed oil to be extracted from shale, and this has completely reinvigorated the US oil industry.7 Developments in refining were crucial in creating products with mass markets which range from “light” products such as jet fuel, through mid-grade products such as gasoline, to “heavy” fuel oil, and in maximising the yield of such products from a given barrel of crude oil. Transportation innovations including rail tankcars, pipelines and marine tankers allowed the profitable exploitation of oil reserves hundreds or even thousands of miles from their point
Introduction 3 of consumption. Finally, technical developments in other industries played an important role, with, for instance, improvements in the strength of drill pipe supplied by the steel industry vital for deep drilling. Economic characteristics of the oil industry Oil exploration and production is an extraction industry with similarities to mining industries such as coal or gold mining. Geology is the starting point for the success or failure of an enterprise. It determines whether reserves are present, the appropriate scale of production of those reserves, and the rate of depletion. The challenge for oil producers is to apply the most appropriate methods and technology to extract the resources in the most efficient manner. This includes correct interpretation of the geology – which since the twentieth century has relied heavily on the use of seismics (tracking and analysing sound waves which are “shot” through the ground) – and effective reservoir management, through the depth, spacing and angle (from vertical to horizontal) of drilling. Upstream capital requirements vary considerably. The cost today ranges from a few million pounds for conducting seismics and drilling one or two onshore wells, in West Siberia or Texas for instance, to billions of pounds for the construction of offshore extraction infrastructure in regions such as the North Sea or the Gulf of Mexico. Due to this range, the degree of concentration of upstream ownership is often not that great, with small independent producers developing lesser deposits and larger multinationals producing from more substantial fields. Another characteristic of the upstream oil industry relates to the natural depletion over time of an oil field. Thus, as the economist Harold Hotelling observed in the 1930s, orthodox economic theory of the firm is not appropriate given that “the indefinite maintenance of a steady rate of production is a physical impossibility.”8 The transportation of oil from the point of extraction to the point of refining is accomplished by pipeline, marine vessel or rail. All three involve large capital expenses and long lead times, and provide opportunities for operators to benefit from economies of scale. Pipeline and rail transportation networks also often exhibit the characteristics of “natural monopoly” industries. Such an industry is one where it is cheaper for one undertaking to supply services than two or more, since the latter would involve replication of plant and networks – fixed costs which are largely insensitive to variations in output. Thus, when competition is present in a natural monopoly industry, the result is welfare losses to consumers that are manifested in higher prices and lower quality. Alternatively, however, when a single unregulated firm dominates, there is a danger of monopoly profits and prices, and limited coverage.9 Oil refining is a heavy processing industry with similar characteristics to industries such as steel or aluminium which turn inputs (crude oil, iron, alloy, etc.) into semi-finished or finished commodities. Oil refineries must adapt both to the type of crude oil available (known as “feedstock”) which may, for instance, have a high or low sulphur content and to the type of market (e.g. automobiles or industry). Sophisticated refineries which have a high yield of the more valuable
4 Introduction light products are very expensive to construct, costing billions of pounds. Thus, barriers to entry are higher in refining, and the ownership structure more concentrated, than in exploration and production. As with transportation, oil refining has significant opportunities for exploiting economies of scale. In addition to refining, another important aspect of the downstream segment of the oil industry is the distribution and sale of refined oil products. This part of the industry can vary from centralised state distribution to sale through small decentralised private outlets. In the West, the large vertically integrated oil majors have tended to own a large proportion of distribution outlets. The gasoline retail business sometimes also exhibits monopoly characteristics – with a single seller controlling prices within a certain area – or oligopoly characteristics – when several sellers collude to keep prices high. The integrated business model of the majors such as ExxonMobil and Royal Dutch Shell – from production through refining to distribution – allows them to benefit from better and more stable margins than dedicated producers, refiners or distributors. Retail prices of refined products are less prone to fluctuation than crude prices, allowing the majors to reduce the impact of falling crude prices on their revenue.10 Essentially the downstream provides a helpful “cushion” in a low oil price environment, while in a high oil price environment profit margins on the upstream business are lucrative. The overall point is that the oil industry is a cyclical business, and an integrated company with upstream and downstream is financially much more robust in the cycle. Along with other energy industries such as nuclear, gas and coal, an important characteristic of the oil industry is a tendency for greater state intervention than elsewhere in the economy. This has been noted by several economists. In the 1980s, Dieter Helm, John Kay and David Thompson identified three main reasons why government played a greater role in energy than in other sectors of the economy: first, that energy is a particularly important commodity whose production affects all other sectors of the economy to a greater degree than most other commodities; second, that the time-scales associated with decisions about energy are exceptionally long, and governments are better able to cope with the resulting uncertainty over future returns than the private sector; and third, that many areas of energy supply are natural monopolies which necessitates government regulation or even outright ownership.11 More recently, Paul Stevens, reinforcing this work, observed that the energy sector has certain characteristics which “emphasize market failures,” and therefore requires “greater government intervention.” He identified that the production and consumption of energy generates very significant externalities, most obviously in the field of environmental concerns, but also with respect to energy’s strategic importance.12 Overall, the oil industry can be seen to be useful for generalising about industrial development in Russia and elsewhere, though with two qualifications. First, the industry has much more relevance for other heavy industries – which also have characteristics such as high capital expenses, long lead times and economies of scale – than light industries. The relevance of the oil industry to other heavy
Introduction 5 industries is borne out by the fact that it was itself, according to A. D. Chandler, at the vanguard of the creation of “modern large-scale industrial enterprises” in the second-half of the nineteenth century with “salaried managers, a vertically integrated structure, and companies exploiting economies of scale and scope in production and distribution.”13 Second, due to its strategic importance and certain natural monopoly characteristics, even when generalising about heavy industry, the tendency for greater state intervention in the oil sector than elsewhere needs to be taken account of, especially when examining the issue of the role of the state in the economy.
Conceptual terminology Economic systems In any given society, the productive resources of land (which include oil resources), labour and capital are limited. Due to this scarcity, societies have to decide in an orderly way what is produced, how to produce it, and for whom it is produced. An economic system is “the set of institutional arrangements used to allocate scarce resources.”14 Such a system is defined by its attributes or characteristics. Paul Gregory and Robert Stuart focus on four general attributes which they identify as key in differentiating economic systems: ownership (private or nonprivate); information and coordination mechanisms (market or plan); levels of decision-making authority and responsibility (centralised or decentralised); and, finally, incentive arrangements (moral or material). Other criteria to distinguish between economic systems include the scale of production and the level of integration into the international economy. Using their four criteria, Gregory and Stuart generate a three-fold classification of economic systems, namely capitalism, market socialism, and planned socialism. Two related concepts are “reform,” which is the process of changing (improving) an existing system, and “transition,” which is the movement from one economic system to another, for instance, from planned socialism to capitalism.15 Institutions and transaction costs The concept of transaction costs is important for understanding the way in which the “institutional arrangements” of economic systems function. Analysis based upon this concept is part of the new institutional economics school, of which the leading figure is Douglass C. North. North views “institutions” as “the rules of the game in a society,” and “organisations” as “players in the game,” and the interaction between institutions and organisations “shaping the direction of institutional change.” Under capitalism, according to North, property rights, the law and share ownership are examples of “formal” institutions, while conventions, attitudes to the law, and codes of conduct are examples of “informal” institutions. Meanwhile, governments, firms, law courts, banks and trade unions are organisations.16
6 Introduction North finds that institutions affect the performance of an economy by their effect on the costs of production and exchange. Together with the technology employed, institutions determine the transformation and transaction costs that make up total costs. Transformation costs are those associated with bringing together land, labour and capital in the production process, while transaction costs consist of “the costs of measuring the valuable attributes of what is being exchanged, and the costs of protecting rights and policing and enforcing agreements.” North identifies the costliness of information as the key to the costs of transacting. An unreliable judicial system, government red-tape and corruption are all examples of things that would create an unfair “playing-field” for business and, thus, increase transaction costs.17 The higher transaction costs are, the slower will be the rate of economic development. North emphasises that “impersonal exchange with third-party enforcement has been a critical underpinning of successful modern economies.” By this he means that in advanced economies, business is conducted through official contracts which firms can rely on the government to, when necessary, enforce.18 Applying this institutional terminology to the oil industry, formal institutions can be seen to be the licensing regime, the procedures for issuing licences, laws on company ownership, and contracts between production and service companies, while informal institutions are conventions, attitudes and codes of conduct amongst government officials, and company executives and employees. Principal-agent relations The concept of principal-agent relations, which is part of organisational economics, is important for understanding the “institutional arrangements” in an economy. According to organisational economics, individuals participate in organised behaviour, pursuing self-interest, subject to bounded rationality. Self-interest is defined as “the pursuit of personal objectives, including material gain, satisfaction from a job well done, enjoyment of leisure and of challenges, and the exercise of responsibility.” Subject to bounded rationality means that individuals “act under the constraints imposed by their intellectual capacities.”19 These characteristics lead to two major classes of organisational problems. The first, technical-administrative problems, derive from individuals who are limited in their ability to make decisions because of, for example, incomplete information. The second, agencymanagerial problems, derive from individuals who, while pursuing self-interest, may pursue objectives differing from those established for the organisation.20 To cope with agency-managerial problems, an organisation must establish rules concerned with setting up subgroups within the organisation, assigning tasks, coordinating activities, monitoring activities, and describing the nature of incentive arrangements. These rules, along with such external factors as cultural and historical influences, largely determine the nature of the organisation and lead to basic and important distinctions among economic systems.21 Except in the case of very simple organisations (such as an owner-operated company with no employees), a hierarchy is present. Superiors (principals)
Introduction 7 establish objectives and issue orders to subordinates (agents) who are supposed to carry out assigned tasks to achieve organisational objectives. When both the principal and the agent are motivated towards the same goal, or when the performance of the agent can be easily monitored, conflicts between the principal and the agent are unlikely to arise. However, when parties have different goals and when monitoring is difficult, conflicts between principal and agent – referred to as an agency problem – are likely, and these have implications for economic development.22 Growth Gregory and Stuart identify two types of economic growth: extensive – which is derived from the expansion of inputs of land, labour and capital – and intensive – which occurs as a result of productivity improvements generated from sources such as organisational and technological change, and qualitative improvements in inputs. The Western experience shows that the process of economic development involves a transition from extensive growth to intensive growth, and long-run growth must come from efficiency improvements because inputs cannot continue to expand indefinitely at a rapid pace. Meanwhile, “dynamic efficiency” is the ability of an economic system to enhance its capacity to produce goods and services over time without an increase in capital and labour inputs.23 Technology Ronald Amann defines “technology” as the ranges of equipment, mechanisms and processes which transform raw materials into products or services. The extent to which technology is effective is determined by the quality, output, novelty and profitability of the final product. In a broader sense he also states that technology also includes the skills of the workforce.24 Robert Millward’s study of the development of private and public enterprise in Western Europe is notable for highlighting the role of technology as opposed to ideology in driving changes in economic organisation since the early nineteenth century.25 As noted above, this is also the case in the oil industry.
Structure, methodology and sources Structure This book is structured chronologically. Chapters 2, 3 and 4 consider the oil industry during successive periods in Russian history between 1861 and 2017: Chapter 2 looks at the late-tsarist economy, 1861–1917; Chapter 3 at the Soviet economy, 1917–1991; and Chapter 4 at the post-Soviet economy, 1992–2017. Chapter 2 begins with an overview of developments in the Russian economy, and in the oil industry in the late-tsarist period. Separate sections then consider the role of the state in industrial leadership, business-state relations including the
8 Introduction presence of monopolies and/or cartels, the role played by foreign participation, and the level of technology in industry. Chapter 3 begins with overviews of the Soviet planned economic system – both in theory and how it functioned in practice – and of the main developments in the oil industry during the period. The issues of enterprise management, efficiency of resource use, and technological development are then examined in detail in separate sections. Chapter 4 begins with an overview of developments both in the Russian economy and in the oil industry in the post-Soviet period. The roles of big business, the state and foreign participation in the oil industry are then considered separately. A further section examines enterprise performance in post-Soviet Russia through the perspective of the oil industry. Chapter 5, the conclusion, reviews the book’s findings, highlights some of the similarities and differences between the different periods, makes several comparisons with the oil industry in the US, and presents some broader conclusions about long-run economic development in Russia and what we can expect going forward. Methodology and sources The research methodology used in this book consisted of both qualitative and quantitative approaches. Qualitative approaches included analysis of primary and secondary sources, and interviews. Quantitative approaches involved the analysis of data on the production, ownership, financial indicators and geographical distribution of the Russian oil industry. In terms of primary sources, I examined documents in the State Archive of the Russian Federation (GARF), in Moscow, about the Soviet oil industry. From Russian libraries – including Russian State (formerly Lenin), State Polytechnic and Moscow State University – as well as the inter-library loan service at the John Ryland’s Library at Manchester University, I was able to locate important texts in Russian about the late-tsarist and Soviet oil industry written by direct participants (these are discussed in the literature review and listed in the bibliography, along with the secondary sources). Academic research that I undertook in Moscow in 1995 for my MPhil thesis, followed by my business work there in 1997–2004, enabled me to collect a considerable number of relevant primary documents on the post-Soviet oil industry including laws, government reports on the restructuring of the sector, company and brokerage reports and company financial accounts. Some of the research I undertook as part of my work during that time was also directly relevant for this study (listed in the bibliography under primary sources). In terms of interviews, I conducted a total of 26, 5 in 1995 in Moscow – when I was researching first phase privatisation of the sector for my MPhil – and 21 in 2006–2009 for my PhD. These were mostly in Moscow, though several were also in West Siberia, the Urals and London (all are listed). The interviewees were mostly a mix of Russian and foreign expatriate oilmen working for integrated oil companies, exploration and production companies, and oil-field service companies. Many of the interviewees had decades of experience working in the oil