Time for a rethink on East-West détente?

The recent brief conflict in Georgia still has some way to run with the Russian’s apparently in no hurry to return to the former status quo. There are two sides to every story, of course, but the Russian view that the Georgian president should be branded as a ‘lunatic’ does carry some weight, despite strong international protestations that the Russian response has, and remains, somewhat exaggerated.

It was however, good to see HeidelbergCement report that its Georgian facilities remained largely unscathed after the Russian territorial incursions. In May 2006, HeidelbergCement purchased a stake of 51% in the Georgian cement grinding plant Kartuli Cementi, close to the Georgian capital of Tbilisi. The plant has since been upgraded to a fully integrated works of 400,000t earlier this year.

At the end of 2006 HeidelbergCement also acquired a stake of 75% in Saqcementi, reportedly the largest cement producer in the Caucasus region. Saqcementi operates two cement plants (Kaspi and Rustavi) near the capital Tbilisi with a total capacity of 1.6Mt, so HeidelbergCement should now be well placed to benefit from a high level of rehabilitation work over coming months throughout Georgia.

The conflict has a long history of course, and the present Russian political leadership still carries the scars of the post-Soviet meltdown when, the now reviled, former Soviet foreign minister, the Georgian-born Eduard Shevardnadze, advocated political and economic liberalisation and the break-up of many of the former Soviet satellite states. Clearly Russia is now intent on redrawing some of its historical boundaries and calling to account some of its more liberal-leaning neighbours.

There are immediate economic consequences of this recent power shift, with the Russian stock markets taking a beating in recent weeks and with many western capital funds now intent on pulling back, and taking a more pragmatic view of their investment positions.

The consequences for foreign groups now in Russia is also worthy of study. The oil giant BP looks to be fighting a lost cause in its attempts to keep its massive oil and gas JV with local Russian oil firm TNK afloat, with the Russian government acting in a rather shadowy, suspect role to break up the partnership. To some, Russia is now becoming something of a no-go area for foreign investors.

At present all foreign cement groups in Russia, essentially, Lafarge, Buzzi Unicem, Holcim and HeidelbergCement have escaped any kind of ‘BP effect’ and while they are clearly not churning out the same massive profit levels for overseas repatriation, they do nevertheless show sizeable returns on relatively low levels of investment spending. All these players are also benefiting from nationwide cement shortages and extremely high domestic prices, with Russia still rather behind on kick-starting its own much-needed expansion programme.

On this basis, foreign cement multi-nationals operating in Russia look safe for some time ahead, although as recent events have shown, no-one can remain too complacent, especially with the Russian bear now re-awakening after an extended 16 year hibernation.

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