Prof. Nikolay Dobronravin, School of International Relations, St.

Petersburg State University (Russia) Sub-National Actors in the Energy Policies of the BRIC States The place of sub-national actors in the energy policy of the BRIC states is analyzed in the paper. The political systems of these four states demonstrate different levels of federalist/unitarist tendencies. Energy policies are to a certain extent influenced by the political systems, but this influence does not mean an easy predictability of the role to be played by major sub-national actors (states in the Federal republic of Brazil, states and union territories in the Republic of India, federal subjects in the Russian Federation, provinces, autonomous regions and special administrative regions in the Peoples Republic of China). The development of sub-national players in the BRIC states may be described in terms of "path dependency". All the BRIC countries went through several decades of uniform national energy policies, where ministries, national agencies and state-owned companies were in command, with practically no autonomy left for sub-national administrative entities. Later on, region-oriented national and truly sub-national players entered the stage, especially in India and Russia. On the other hand, no comparable role shift has been achieved in Brazil and China. The explanations for open for discussion. The cases of Tatarstan in the Russian Federation and Gujarat in India demonstrate how a subnational actor may acquire a significant level of autonomy within a national energy policy up to the global level. Hydrocarbon reserves of Tatarstan and Gujarat would undoubtedly pale many independent states, even if neither is comparable to Saudi Arabia or Iraq. Both Tatarstan and Gujarat had had a long history of their own before modern Russia and India came into being. On the other hand, neither of them has existed within the modern administrative boundaries separately from the respective central governments (although Tatarstan did try to mount a sovereign political system in the early 1990s). Tatarstan as a sub-national actor in Russias energy policy The official description of Tatarstans natural resources starts with the following clear statement of the role still played by oil in the economy of the republic: The main wealth of Tatarstan is such divergent developments cannot be found in the local peculiarities of federalism, while path dependency seems more plausible as answer, though still

crude oil. Its biggest oil deposits are the Romashkinskoye, Novo-Elkhovskoye, Pervomaiskoye and Bondyuzhskoye oil fields located in the Southeast and the Northeast of Tatarstan. The first industrial oil deposit (the Shugurovskoye) was discovered in July 1943; industrial exploitation started in September, 1946. In the whole period of oil production the total amount of oil extracted made up 2.6 bln. t. The current oil reserves of the Republic are still large (0.8-0.9 bln. t), though its substantial part is concentrated in medium and small deposits still awaiting their development. The largest deposits are nearly exhausted, e.g. the Romashkinskoye exhausted 83 per cent of its reserves, the Novo-Elkhovskoye - 69 per cent). Other natural resources, such as gas, coal and water, are also mentioned, but their role seems to be either secondary or relegated to an uncertain future.1 Indeed, the development of Tatarstan between the 1930s and the collapse of the Soviet Union was centered on petroleum and petrochemical industry. The oil industry in the then Tatar Autonomous Soviet Socialist Republic was triggered off by the strategic decisions of the ruling Communist Party. In 1939, the Soviet leadership was preparing for the war in Europe, and the 18th party congress decided to create a new center of oil extraction, the so called Second Baku. Tatneft, the future oil company of Tatarstan, was established in 1950 under the Unions Ministry of Oil Industry. The resource wealth of Tatarstan as well as its human and industrial potential fuelled all forms of autonomist or separatist aspirations in the republic well before the breakdown of the Soviet Union. Tatarstan as region was economically stronger than some of the 15 Soviet Socialist republics that had the right to secede from the Union. It is not surprising that the Tatar Republic was eager to upgrade its political role, both locally and globally. The 1990s saw the transformation of Tatarstan from an Autonous Republic into a vibrant quasistate. On August 30, 1990 the Declaration on the State Sovereignty of the Tatar Soviet Socialist Republic was adopted by the Supreme Soviet of the republic, proclaiming Tatar state sovereignty and establishing the Tatar Soviet Socialist Republic - The Republic of Tatarstan. The short text of the Declaration also include a very important clause on Tatarstans resources: 2.The land, its natural resources and other resources on the territory of the Tatar SSR are the exclusive property of Tatar people. 2 Oil was not explicitly mentioned, but, as we know, it was and remains the main natural resource of Tatarstan. After the end of the USSR, Tatarstan joined the list of post-Soviet quasi-states, including passports, embassies and full control of its substantial oil industry. 3 In its relationship with the Russian Federation, the republic positioned itself as an associated state with its own citizenship. In 1994, Russia and Tatarstan signed a treaty "On Delimitation of Jurisdictional Subjects and Mutual Delegation of Powers between Bodies of Public Authority of the Russian

Federation and Bodies of Public Authority of the Republic of Tatarstan" and a few special agreements on oil industry. Also in 1994, Tatneft became a joint stock company, with the government of Tatarstan as its major shareholder. The company founded joint ventures with Kalmykia (one more former Autonomous Republic in the Russian Federation) and South Korea, started oil exploration and other businesses (such as filling stations in Ukraine) out of Russia and beyond the boundaries of the former Soviet Union. 4 The federal government was never happy with a de facto independent status of the republic. In the 2000s, the legislation of Tatarstan, including the constitution, was amended under the pressure from Moscow. A new Treaty on Delimitation of Jurisdictional Subjects and Powers between Bodies of Public Authority of the Russian Federation and Bodies of Public Authority of the Republic of Tatarstan, valid for 10 years, was concluded in 2007, with a direct reference to oil. As stated in the treaty, taking into consideration that the use and protection of land, subsurface resources, water, forest and other natural resources in the territory of the Republic of Tatarstan constitute the basis of life and activity of its multinational people, the Government of the Russian Federation and the Cabinet of Ministers of the Republic of Tatarstan conclude agreements providing for the joint resolution of issues related to economic, environmental (resulting from the long use of oil deposits with account taken for the mining and geological conditions of hydrocarbons extraction), cultural and other specific features of the Republic of Tatarstan. 5 After amendment, the constitution of Tatarstan now describes it in the following terms: The Republic of Tatarstan is a democratic constitutional State associated with the Russian Federation by the Constitution of the Russian Federation, the Constitution of the Republic of Tatarstan and the Treaty between the Russian Federation and the Republic of Tatarstan On Delimitation of Jurisdictional Subjects and Mutual Delegation of Powers between the State Bodies of the Russian Federation and the State Bodies of the Republic of Tatarstan, and a subject of the Russian Federation. 6 According to Article 16 (1), the land, mineral resources, water, wood and other natural resources, fauna and flora shall be used and protected in the Republic of Tatarstan as a basis of life and activity of the people. 7 In 2001, a new tax on minerals led to the redistribution of oil and gas revenues between oil and gas producers and the federal government (from 60:40 to 20:80). Andrey Zaostrovtsev, a Russian economist, argued that the federal center has drawn them to itself. If in 2002, these revenues of the federal budget came to 79.2 percent of all oil and gas revenues in the budget system of the Russian Federation as a whole, in 2006 this share came to 90.1 percent (however, in 2007 it dropped to 83.5 percent). However, the importance of these revenues for subnational budgets of

the Russian Federation is much greater, as one of the major items of expenditure of the federal budget (and the major source of revenues in subnational budgets) is interbudgetary transfers.
8

By the middle of the decade Tatarstan could only get about 5 per cent from the tax on minerals collected in the republic. Starting from 2010, the whole amount of the extraction tax is going to be drawn to the federal budget. The ability of Tatarstan to pursue its own political agenda, including energy policy, has dropped significantly in the 2000s and is not expected to grow again in the nearest future. Tatneft continues to operate in Tatarstan, other regions of the Russian federation and abroad. Despite strong political connections in the republic, where the company has its headquarters, Tatneft has become one of Russias, rather than Tatarstans, leading oil and gas corporations. Gujarat: Indias only state with its own oil and gas corporation Unlike Tatarstan, which is situated near the geographical center of European Russia, Indias state of Gujarat possesses both mineral resources and an advantageous geographical position near the sea-shore and next to the external boundary of the federation. Many states of India lack sufficient energy resources. Before the 1960s, the only oil-producing region was the state of Assam. The whole oil and gas industry was controlled by the government of the Union through national companies such as ONGC. In the 1960s, Gujarat became a new center of oil and gas extraction. In 1979 GSPC (Gujarat State Petroleum Corporation) was created as a petrochemical company, controlled by the government of Gujarat (97% state-owned by 2010). The company was an unusual example of local initiative in petroleum industry, and it became even more exceptional in the 1990s. When the government in New Delhi decided to liberalize the oil and gas sector, GSPC bought several new fields and became a vertically integrated energy company. The company transformed into a large corporation, the GSPC Group, with business partners and exploration projects abroad. According to its own vision, a complete energy conglomerate, the GSPC Group is working actively to realize the vision of developing Gujarat as a natural gas driven economy. Along the way, the Group has notched several milestones that have become important landmarks in Indias energy scene. 9 As concerns the level of political and economic autonomy of the Indian states, it was determined by Indias constitution and federal laws. Nevertheless this question has been as thorny as it was in post-Soviet Russia. The Union Government has made decisions on royalty rates to be paid to the states, depending on the importance of the minerals and the changes in national strategy.

Among the energy-rich states of India, the position of oil-producers deserves special attention. According to some scholars, these states have been treated better by the federal government. For example, the coal-rich state of Bihar was in a less advantageous position if compared with oil producers: Bihar receives fixed royalties on its minerals. Besides, their rates are low. They are ad specific, not ad valorem. While mineral production has been decaying, its nominal value has been soaring. On top of all, the Centre employs a double standard - Bihar receives royalty at the rate of one per cent on its coal, whereas Assam does at the rate of 25 per cent on its petroleum. Royalty on crude oil is revised regularly, but not the royalties on Minerals in Bihar. Gujarat and Maharashtra have been able to enlist better terms for their offshore oil and gas for their own industrial uses at cheaper prices than other states (so has Assam too in respect of its crude oil) but Bihar is crushed under the freight and price equalisation formulae. 10 In 2007, the royalties on coal and lignite were revised by the Union (up to around 14 percent), producing a mixed reaction in the states (e.g., this increase in the royalty rates will adversely affect the industrial as well as the domestic electricity consumers as this imposition will ultimately be passed on to them in the way of higher tariff on the power consumption11). The unique position of Gujarat as a sub-national actor in Indias energy policy has been tolerated by the central government in New Delhi. Assam, the other major oil producer, was treated in a different way. The government of Assam has been able to obtain substantial share of its oil revenues back from the Union. However, no separate petroleum company was established in this state. In 1981, after its nationalization, Assam Oil Company was merged with IOC (Indian Oil Corporation). The government of the state lost an opportunity to get a state-controlled energy company. The difference between the treatment of Gujarat and Assam may be explained by the peculiarities in the politics of both states. Gujarat has been, generally speaking, more or less loyal to New Delhi. On the contrary, there has existed a strong autonomist or secessionist tendency in Assam since the very beginning of modern Indias independence. A still active United Liberation Front of Asom (ULFA) was formed in 1979. The separatists of ULFA have used attacks on petroleum installations as a weapon in their national liberation struggle against the federal center. Thus, establishing a state-controlled energy corporation for the potentially unruly region would probably be seen in India and abroad as one more step towards the transformation of Assam into a sovereign state, hardly a sound proposal to which the Union Government could subscribe without hesitation. Hydrocarbon and other natural resource producing states of India have shown their interest in higher royalty rates. Assam has been vocal in this respect, even though it was in a better position

than Gujarat and the other oil producers.12 Assams insistence seems to be fuelled more by the pressure from the separatists than by the greed of the government of this state. It may be said that Gujarat is a self-adaptive sub-national actor, at least in the energy sector, while the Indian state of Assam is an unwilled actor with an uncertain future.

Brazilian sub-national actors: the pre-salt states and the struggle for oil royalties

In Brazil, the growing interest of oil-rich states in a certain level of energy autonomy has been attested since the beginning of the discussion on pre-salt oil and gas in the 2000s. Before that, the Brazilian states had often struggled for their own interests, but energy issues were seemingly far from the center of such clashes between the states and the federal government or among the states themselves. In the period of the Estado Novo (New State), between 1937 and 1945, as well as under the rule of the military regimes between 1964 and 1985, a state could lobby for some advantages, but very little independence could be tolerated. It is worth mention that Brazil, unlike Russia or India, did not have to overcome the trauma of territorial losses since the 19th century. However, the country did witness some separatist tendencies in the South. The military conflict of 1932 (the Consitutionalist Revolution), opposing the state of Sao Paulo to the federal government, then in Rio de Janeiro, was also perceived by the central power as a separatist rebellion. The federal government won, but the spectre (hardly a real danger) of separatism persisted. Even stronger has been the fear that the United States of America or some other foreign power would one day occupy or otherwise put under control the natural resources of the Amazon region. Brazilian hydrocarbon resources onshore are concentrated in Bahia and a few other states of the North-East. This is the poorest region of the country, comparable to some African countries, and oil has not helped much to its development. Several fields were also found offshore in the same region, but the centre of offshore petroleum industry has developed in the state of Rio de Janeiro. In the last few years, pre-salt oil extraction started offshore near the coast of the states of Rio de Janeiro, Sao Paulo and Espiritu Santo. The new perspectives for Brazilian oil and gas industry also attracted the attention of regional political elites. The oil-rich states wanted a fairer share of future oil profits, thus adding a new stroke to their role as sub-national political actors. The surge of sub-national energy politics could not materialize before the 2000s due to a very special role played by Petrobras. This state-owned company is now a public corporation, still

under the control of the federal government as a major stockholder. Petrobras, as the biggest company in Brazil, is omnipresent in that country, be it economy, culture or politics. The corporation has become one of the symbols of Brazilian sovereignty as well as a backbone of national economy, although the modern Brazil has never been a petro-state. As a national company, Petrobras does not seem to reflect the federal character of Brazils political system. One can argue that in a federation the structure of such a company would be expected to look different from what it is now. In the sector of Exploration and production, the structure of Petrobras includes North-Northeast and South-Southwest.13 Both elements are vaguely regional, without any direct reference to Bahia, Rio de Janeiro or other oil-producing states. As written in the current Brazilian Constitution of 1988, the property of the Union includes the natural resources of the continental shelf and of the exclusive economic zone; () the hydraulic energy potentials; the mineral resources, including those of the subsoil (Article 20). The Paragraph 1 of this article presents a model for revenue distribution between the Union and subnational entities: In accordance with the law, the participation in the results of the exploitation of petroleum or natural gas, hydric resources for the purpose of generation of electric power and other mineral resources in the respective territory, continental shelf, territorial sea or exclusive economic zone, financial compensation for the exploitation thereof, is assured to the States, Federal District and the municipalities, as well as to agencies of the administration of the Union.14 In 2009, the President Luiz Inacio Lula da Silva announced the plan of establishing a new company, Petrosal, totally controlled by the state. A the same time, the controversy around sharing offshore oil revenues resulted in an open conlict between the federal government and the states of Rio de Janeiro, Sao Paulo and Espiritu Santo. Among these states , Rio de Janeiro was the most vocal, its government declaring that without these revenues it would be impossible for Rio to host the World Cup in 2014 and the Olympic Games in 2016.15 Before the new model (amendment Ibsen/Simon) was suggested, the distribution of petroleum wealth, including one third of the pre-salt oilfields, followed the schemes of royalties and special participation. Under the model with royalties, the revenues would be shared between the Union (30%), oil-producing states (22,5%), oil-producing municipalities (22,5%), oilexporting municipalities (7,5%) and non-producing states and municipalities (7,5%). Under the model of special participation, the percentage would be respectively 50%, 40%, 10%, with no share left for non-producing states and municipalities. The new system divides the oil revenues 70:30 between oil-producers and the Union (if the royalties are applied) or 50:50 between all the states and municipalities (not just the oil-producers) and the Union.16

The ongoing discussion about the oil revenues indicates that several Brazilian states will tend to play a bigger role in the national energy policy. However, no state has established its own energy company of national importance. Even the state of Rio de Janeiro, an active sub-national policy actor, does not seem to place the energy issues in the center of its aspirations. China: following in Brazils steps? The role of provinces in the energy policy of the Peoples Republic of China is still difficult to define. One can argue that the turbulent pre-1949 history of China does not leave much space for sub-national politics, and it is not easy to compare even the fastest growing provinces to the sub-national political actors in India or Russia. Those provinces that theoretically could claim more autonomy had been notoriously unruly in the first half of the 20th century. The oil-rich territories of Manchuria and Xinjiang were under foreign control or prone to fall under the influence of foreign powers. Therefore, it is possible to speculate that no Chinese province had demonstrated its ability to digest its autonomy, at least in terms of energy policy, before 1949. For instance, the search for oil in Xinjiang in the 1940s, tolerated by the provincial government, was started by Soviet geologists. As a result of this search, important oilfields were discovered in the province. The oil was extracted and exported to the Soviet Union. In return, Xinjiang got some refining industry, but again unde foreign control, while oil products were also mainly exported. It was only between 1950 and 1954 that petroleum industry in Xinjiang became part of Chinas economy. During these years a joint venture, Sovkitneft, was established and functioned on a more sound legal basis, recognized by both Peoples Republic of China and the Soviet Union. 17 In the last two decades of the 20th century, Xinjiang resurfaced as a potential bridge between the newly-independent states of Central Asia, the Russian Federation and China. Since the 1990s, Central Asian countries have strived to develop exportation of oil and gas not only to Europe (either through Russia or bypassing it) but also to East Asia. The major proposed consumers of oil and gas are located east of Xinjiang in the maritime provinces of China. These provinces have no direct contact with Central Asia. Michael Klare assessed this export route (the most ambitious) as follows: Aside from the various geographical impediments to this project much of the terrain along this route is harsh and mountainousthe proposed pipeline would pass through several areas of instability, including Chinas remote Xinjiang province. 18 Over the last two decades, the Chinese infrastructure has swiftly developed. Despite ethnopolitical problems, new transport routes have been laid through Xinjiang, and continue to develop in the form of pipelines and railways connecting China with Central Asia, first and

foremost with Kazakhstan. According to Chinese assessments, In history, Xinjiang served as the key controlling section of the well-known Silk Road, while now it is an unavoidable part of the railway leading to the second Eurasia Continental Bridge. 19 In 2006, an agreement was signed on construction of the Turkmenistan-China gas pipeline (through Uzbekistan, the Kyrgyz Republic, and Kazakhstan). This pipeline, inaugurated in December 2009, is supposed to be completed by 2011. The next mportant step in the same direction will be the construction of the Altai gas pipeline from Russia's Western Siberia to Xinjiang. Thus the role of Xinjiang as an energy transit corridor is expected to grow. It is, however, unclear whether this growing importance of Chinas North-West will result in more autonomy for local decision-making, taking into account the previous history of instability and the challenges of regional political geography and cultural landscape. Besides a direct political danger that the central government has been able to master successfully, there remain the issues of fairer wealth distribution and possible ecological concern. The development of Chinese offshore oil and gas fields may also lead to the re-assessment of the role to be played by the adjacent maritime provinces, making them look closer to the pre-salt states of Brazil (such as the state of Rio de Janeiro), who have vied for more oil royalties with all other states and the federal center . The central government of China could in principle deal with such challenges on its own, at least in the nearest future. Whether the legalization of some form of royalties or any sub-national autonomy in energy policy may be applicable to Xinjiang or any other energy-rich province, is beyond the scope of this paper. NOTES 1 Economy: Natural Resources, Government of Tatarstan, Official Werbsite, http://www.tatar.ru/?DNSID=5105b92599326b9cf2b948ddbef4c0a7&node_id=1362. 2 Declaration on the State Sovereignty of the Tatar Soviet Socialist Republic, Kazan, August 30, 1990, http://www.tatar.ru/?DNSID=5105b92599326b9cf2b948ddbef4c0a7&node_id=814 . 3 Yahia Said, Greed and Grievance in Chechnya, in Mary Kaldor, Terry Lynn Karl, and Yahia Said, eds., Oil Wars (London: Pluto Press, 2007), 136. 4 History of TATNEFT Group. Concise History in Facts and Figures, http://www.tatneft.ru/wps/wcm/jsp/print.jsp? id=com.ibm.workplace.wcm.api.WCM_Content/history_of_tatneft_group/ . 5 Treaty on Delimitation of Jurisdictional Subjects and Powers between Bodies of Public Authority of the Russian Federation and Bodies of Public Authority of the Republic of Tatarstan

Article 6 Constitution of the

2 Republic of

(2), Tatarstan. Article 1,

http://www.tatar.ru/? http://www.tatar.ru/?

DNSID=5105b92599326b9cf2b948ddbef4c0a7&node_id=813. DNSID=5105b92599326b9cf2b948ddbef4c0a7&node_id=1384 . 7 Ibid., Article 16 (1). 8 Andrey Zaostrovtsev, Oil Boom and Governance Finance in Russia: Stabilization Fund and Its Fate, in Vladimir Gelman and Otar Marganiya, eds., Resource curse and post-Soviet Eurasia : oil, gas, and modernization (Lanham, Boulder, New York, Toronto, Plymouth: Lexington Books, 2010), 124-125. 9 Vision, GSPC Group, http://www.gspcgroup.com/ . 10 Kedar Nath Prasad, Bihar Economy Through The Plans : In Comparison with All-India and Other States (New Delhi : Northern Book Centre, 1997), 283. 11 Recent Revision Of Royalty On Minerals, http://www.naukrihub.com/india/mining/recentdevelopments/royalty-minerals.html . 12 See, e.g., Sanjay Dutta, Assam seeks more royalty on crude, excise relief, The Times of India, January 4, 2002, http://timesofindia.indiatimes.com/india/Assam-seeks-more-royalty-oncrude-excise-relief/articleshow/1164702609.cms 13 Petrobras, Organization Chart, http://www.petrobras.com.br/en/about-us/profile/organizationchart/ . 14 For the English translation, see Brazil Constitution, http://www.vbrazil.com/government/laws/titleIII.html . 15 Emenda Ibsen: 'Afinal, a quem pertencem os royalties do petrleo?', O Globo, 16.03.2010, http://oglobo.globo.com/opiniao/mat/2010/03/16/afinal-quem-pertencem-os-royalties-dopetroleo-916073840.asp . 16 Camila Campanerut, Cmara aprova projeto sobre royalties do pr-sal, UOL Noticias, 10.03.2010, http://noticias.uol.com.br/politica/2010/03/10/camara-aprova-projeto-sobreroyalties-do-pre-sal.jhtm. 17 About the role of oil and other energy resources in the modern history of Xinjiang see, e.g. Vadim Obukhov, Skhvatka shesti imperij. Bitva za Sintszan (Moscow: Veche, 2007). 18 Michael T. Klare, Resource Wars: The New Landscape of Global Conflict (New York: Owl Books, repr. ed. 2002), 104. 19 Atlas of China (Beijing: SinoMaps Press, 2008), 120.