The report of the rector of St. Petersburg Mining University was one of the central presentations at the 9th International Conference on Energy, Resources, Environment and Sustainable Development (ERESD 2022), which was held in China. Scientists and engineers from more than 20 countries took part in it and exchanged their opinions on the ways of development of the global mineral and raw material sector.
Recently, due to the departure from Russia of many followers of liberalism, the public debate on the optimal ways of further economic development of the country has been intensified with renewed vigor. In the nineties it was believed that the market system was capable of self-regulation, as growing demand automatically increases supply, and falling demand, on the contrary, reduces it by the "withdrawal from the game" of the least competitive producers of goods and services. The conclusion was obvious: active government intervention in this process is undesirable, it only interferes with business, reduces its potential profit, and hence the volume of tax revenues to the budget.
The Nineties, as well as the economic crisis in which Russians lived until the election of President Vladimir Putin, have long passed into oblivion. However, a number of postulates of that time are still perceived by the society as the ultimate truth, and any deviation from this interpretation is associated with a number of financial problems. Thus, up to February of this year, storage of funds of our National State Fund in US and EU bonds was considered not only permissible, but even an obligatory condition, contributing to the economic progress. The epiphany has come quite recently, after these assets were frozen.
The obligatory presence of a foreign trade surplus was also recognized as dogma. That is the prevalence of export revenues over import costs, because otherwise the national currency rate would allegedly get out of control and start to fall sharply. The further logic was as follows: since we are able to stay in the "plus" only by selling raw materials abroad, it means that this is the best paradigm. Other options for the priority use of resources, such as the creation of value-added chains within the country through the construction of processing plants and the production of high-margin consumer goods, for some reason did not enjoy much popularity.
To a large extent, this kind of illusion was due to the dominance of liberal economists in the centers of decision-making. Despite the fact that their ideas at the end of the last century noticeably weakened Russia and led to a sharp decline in the quality of life, in the twenty-first century they still have a very serious influence on the direction of our state's development. Although the most significant factor that contributed to the growth of the well-being of ordinary Russians in the mid-2000s was exactly the "anti-liberal" decision of Vladimir Putin to increase the level of state regulation of the oil and gas sector.
"Transnational management of mineral resources is a certain feature of global politics and is perceived as something natural. Meanwhile, the experience of the 90's, when the main beneficiaries of the extraction of raw materials in our country were Western companies or unscrupulous domestic businessmen, shows the detrimental nature of this economic model. The resource base of any state must work, first of all, in the interests of its residents. But this is possible only in case of active, professional and transparent activities of the government in managing the entire cycle: from extraction of minerals to their exploitation," says Vladimir Litvinenko, leading expert in the field of fuel and energy, rector of St. Petersburg Mining University.
We are by no means talking about the transfer to the state of the employer function, it should a priori remain with the mining, oil and gas and geological exploration companies. However, it is the state that must create transparent and profitable rules of the game for all market participants, starting from regulation of production volumes or greenhouse gas emissions and ending with creation of conditions aimed at improving the efficiency of resource consumption. This important task can be solved by reducing hydrocarbon transportation losses, implementing technologies that optimize their use, and, of course, energy conservation.
"In today's realities, strengthening state regulation of the market is especially important because there is an artificial reduction in investment in the development of deposits in the world, reducing supply but not demand. There is a widespread introduction of environmental and social principles of the ESG, which creates additional pressure on mining companies (because the assessment is carried out by formal reports) and increases the payback period of projects. These and other factors lead to demotivation of subsoil users, shortage of raw materials in the market and contribute to higher prices for almost all energy resources and strategic metals. In order to change the conjuncture, states with significant deposits of minerals need to urgently revise the policy for resource management; to unite their efforts, to create a unified modular approach to the development of deposits which would be based on the priority of national interests rather than transnational corporations and western elites," summed up Vladimir Litvinenko.
His speech at the IX International Conference on Energy, Resources, Environment, and Sustainable Development, held in China, was devoted to this very topic and became one of the most discussed among the forum's delegates. As Zhang Zhenkang, vice-rector for international relations at the China University of Mining and Technology (CUMT, one of the largest technical universities in the world), told Forpost "many participants fully agreed that it is public policy that has the greatest influence on the sustainable development of society."
Mining University became a co-organizer of a major international scientific forum in China
When asked if strict government regulation is the main reason for China's rise to become the world's second largest economy, he answers that it is primarily "the success of the socialist system with Chinese characteristics" in general. However, the regulatory authorities do have a major impact on the market. In particular, it is about balancing supply and demand, minimizing volatility and fighting big speculators.
"Nine years ago, our state regulatory agencies underwent the largest institutional reform since the founding of the new China in 1949. And in 2018, the new State Administration of Market Regulation (SAMR) was established, which is responsible for price control, quality of goods and services, antitrust enforcement and a number of other issues. The goal is to ensure that market supervision contributes to the healthy development of enterprises and the economy as a whole," Zhang Zhenkang explained.
The authority of the agency is indeed very broad. It is subordinate to the State Council of the People's Republic of China, the main administrative body in the country, and is designed, among other things, to coordinate the work of various ministries and departments. It enables them to avoid duplication of various functions, reduce bureaucracy and corruption.
Last spring, SAMR fined Alibaba $2.78 billion for violating anti-monopoly laws. The regulator said its policies left consumers with no choice and "adversely affected the competitive environment of the Chinese e-commerce market." A few months later an investigation was launched into distributors of automotive chips, and a little later, into manufacturers of building materials.
The authority of the State Administration for Market Regulation of the People's Republic of China is so great that a mere statement of its representatives about the intention to conduct an inspection of certain actions of market players is often enough to cool the ardor of speculators and bring down prices on exchanges. This happened last October, when it finally became clear that Nord Stream 2 would not be commissioned. The cost of natural gas on all global trading floors began to rise sharply in this regard and pulled down quotations for other raw materials. Many of them were at multi-year highs, and some of them set historical records.
After the agency's warning, the situation changed dramatically. For example, prices for coking coal and coke fell by 9% during the day. Other energy carriers and base metals followed suit. In particular, aluminum and zinc dropped more than 6%. And, most interestingly, it happened not only in Asia, but also on the European and American exchanges, because China is the largest consumer of raw materials, and the trends in its markets are of global importance.
As Vladimir Litvinenko said at the forum, an equally important task for the regulator, in addition to controlling prices and creating a favorable environment for business, is minimizing the anthropogenic impact on the environment. It is obvious that the manager of a mining or oil and gas company must be a very responsible person in order to set the toughest possible rules for his company in this sphere and monitor their enforcement. In practice, unfortunately, this is not always the case, so the state is obliged to work out clear and favorable conditions for all, including subsoil users. The goal is to find a compromise between ecology and the growing need of mankind in resources.
"This is a very interesting topic. I think it is up to the central government to develop a strategy that strikes a balance between the need for natural resources and the protection of the environment. The report of the 18th National Congress of the Communist Party of China in 2012 for the first time recognized the construction of ecological civilization as equally important as economic, political, cultural and social development. And included in the overall scheme of socialism with Chinese characteristics. Take coal, for example. Currently, this resource is still one of the most important sources of energy in the world, accounting for 63% of China's energy production and 25% worldwide. It is the cornerstone industry for China, and without it, sustainable development will be impossible. So we need to think not about how to abandon it, but to first reduce the greenhouse gas emissions that occur when coal is burned in cogeneration plants, and then to reduce the emissions to zero. This, of course, is a state task and its solution depends primarily on state regulation," stressed Zhang Zhenkang.
However, in his opinion, success in minimizing the technogenic impact on the biosphere depends largely on the willingness of scientists to integrate into a unified scientific and educational environment in order to introduce the best specialized technologies worldwide. The policy of closed borders and sanctions, of course, does not help to solve such an essential problem for all mankind.
"The International Conference on Energy, Resources, Environment and Sustainable Development, which was held at our university, was a great example of scientists from around the world sharing their wisdom with each other. This is necessary to achieve a balance between human development and the exploitation of natural resources," said the CUMT Vice Rector.
Another important task that must be constantly in the sight of the regulators is the training of competent engineering personnel. There is a shortage of them today in almost all countries, including Russia and China. How many graduates in these or those specialties will the state need in 5, 10 years and in the long term? How will the system of their professional development function throughout their lives? The absence of answers to these and other similar questions will make monetization of natural resources and their transformation into social capital very difficult.
"To address this problem, the PRC, for example, has launched the The Double First-Class initiative, which aims to create a number of world-class universities as well as academic training programs that meet modern market and government requirements. Thanks to this solution, the level of competence of Chinese engineers should increase markedly over the next two to three decades, enabling our country to achieve all of its stated goals," summarized Zhang Zhenkang.
