PAPERS FOR SECRETARY SIMON'S OCTOBER VISIT TO MOSCOW S-6484

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900030092-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 21
• Document Creation Date: December 20, 2016
• Document Release Date: August 18, 2005
• Sequence Number: 92
• Publication Date: October 1, 1974
• Content Type: REPORT

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 pr~eq' o0r 2ele d 4@g4+T47j. ~-,)A-RD
Papers for Secretary Simon's
October Visit to Moscow
1 October 1974
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Soviet Energy Strategy
The USSR has followed the path of other industrial nations
in converting from coal to oil and gas.. As a result of the
recent rapid rise in oil prices, more attention is now being
paid to use of coal in electric powerplants than has been the
case for some time. Under existing plans, the share of oil
and gas in total energy consumption -- almost three-fifths
in 1973 (Table 1) -- will continue to grow. These fuels,
however, will be reserved for higher priority domestic uses
and for export. The contribution of nuclear power to the
Soviet energy balance will not be of much importance until
after the mid-1980s.
Since 1960, a remarkable expansion in the production of
the major forms of energy has supported Soviet economic
Vot
development (Table 2).%/dditions to capacity are becoming
increasingly expensive -in the USSR.. About 80% of the primary
energy resources are located east of the Ural Mountains, far
from the industrial centers where three-fourths of the energy
is used. Expansion of oil and gas production entails develop-
ment of reserves in remote Siberian areas where exploitation
is hampered by harsh climate, difficult terrain, and perma-
frost.
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USSR: Production and Consumption of Energy,, 1973
Production Consumption
AA'
Million tons Percent Million tons Percent
Oil
Natural gas
Co' -:11
.Hydroelectric and
nuclear power
613 41.8 463 35.4
281 19.1 288 22.0
468 31.9 454 34.8
48 3.3 44 3.4
Other** 57
TOTAl 1,467 10010 1,306 100,0
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Million tons of hard coal equivalent (7,000,000 Kilocalories
per metric tons.)
** Oil shale, peat, and fuelwood.
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USSR: Production of Fuels and Power 1960-1975 Plan
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1975
Unit of Production
1950
1965
1970
1971 1972
1973
Plan
Crude Oil
Million metric tons
147.2
241.7
348.8
371.8 393.8
421
Natural Gas
B.:1lion cubic meters
45.3
127.7
197.9
212.4 221.4
236.3
Coal*
Million metric tons
490.1
545.1
577.5
591.5 603.6
615
639
Electric Power:
Billion kilowatt-hours
292.3
506.7
740.9
800.4 857.4
915
1;065
The=al
241.4
425.3
616.5
674.3 734.5
790
900
h dro
50.9
81.4
124.4
126.1 122.9
125 ?
155
Nuclear Power
Billion kilowatt-hours
0
1.4
3.5
3.5 7.7
11.7
25
Cif Shale
Million metric tons
14.1
21.3
24.3
26.1 29.3
N.A.
32.7
Peat
Million metric tons
53.6
45.7
57.5
44.9 57.0
N.A.
78.3
Fuelwood
Million cubic meters
74.4
86.9
69
69 66.7
N.A.
55.5
Net Production.
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Three-fourths of Soviet coal reserves are also in
Siberia. Most of this coal is suitable only for producing
steam for heat or electric power generation. Nevertheless,
construction of large powerplants near these deposits has not
begun because neither local demand nor long distance trans-
mission facilities are sufficiently developed. The USSR is,
however, developing high-voltage, interconnected networks to
move large amounts of power to consuming centers in the
western part of the country.
Find-ing and developing new energy resources under
Siberian conditions poses major problems:
o Much of Soviet geophysical and exploration
equipment is obsolete and unsuited for complex
geologic structures and permafrost
o Lack of computerized analytical facilities
limit!; capability to locate new deposits.
e Soviet oil field operations are hampered by
shortages of good quality drill pipe and casing,
poor quality hits, under-powered mud pumps, and
inadequate blowout preventers.
Exploitation of potential offshore oil deposits in northern
and eastern seas will require Western Lqu1pment and know-how.
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The USSR will strive to develop its energy resources for
export as well as for domestic needs. For several years
exports c.:: oil have been the USSR's largest single source
of foreign exchange. In 1973 exports to the West amounted
to about 700,000 bpd and earned $1.25 billion in hard
currency. Net'exports of oil in 1973 amounted to about
2.1 million bpd -- almost one-fourth of total crude oil output
and about 10% of all energy produced. Moscow delivered 1.1
million bpd of oil to Eastern Europe in 1973, about two-thirds
of East European oil supplies. The USSR will continue to provide
the bulk of the oil needed by Eastern Europe, mostly through
the Friendship pipeline but also by procuring Middle Eastern
oil. By the early 1980s the USSR probably will be able to I
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continue meeting its own needs and those of Eastern Europe only
if exports to the West are held to about the present level.
The USSR now is a small net importer of natural gas, but
deliveries to Western Europe are scheduled to.grow considerably
as a result of contracts with Austria, West Germany, Italy,
and France. Negotiated in 1969-72, these contracts provided
for delivery of large--diameter pipe and and ancillary equipment
to the USSR in exchange for future deliveries of gas. The USSR
has also stepped up deliveries of natural gas to Eastern
Europe. In 1973 it provided about 176 billion cubic feet,
approximately 10% of Eastern Europe's total gas supply. By 1975,
Eastern Europe will rely on the USSR for 20%of its total gas supply.
Soviet economic plans therefore depend on a continued rapid
growth of energy supplies. The upward trend in consumption
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will be reinforced by increased production of automobiles
and trucks. Although leaders frequently stress the need
to conserve energy and use it efficiently, increases in
production are given priority over conservation.
The USSR is pushing cooperative ventures with US and
Japanese firms to get Western assistance in developing
Siberian gas deposits and to earn foreign exchange from
sales of liquefied natural gas (LNG). US participation has
become questionable because of pricing and financing problems.
Even without US assistance, gas from West Siberian deposits
-:ould be sold to Western Europe when the Soviet pipeline
network is completed. Whether Japan would participate in
developing East Siberian deposits without the United States is
uncertain. In any event, other foreign markets for East Siberian
gas are unlikely to develop for a long time.
The Japanese have agreed to provide $450 million to help
finance development of coal reserves in East Siberia near
Yakutsk. In return, the USSR is to export 104 million tons
of coking coal to Japan during 1979-98. A cooperative arrange-
ment also is underway between the USSR and Japan, with Gulf Oil
Company as technical advisor, to locate and develop oil deposits
in the offshore area around Sakhalin. If oil is discovered,
Japan will be able to procure half the oil produced.
In the energy field, neither the USSR nor the US has
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much bargaining power in relation to the other. Although the
United States needs oil and the USSR needs modern equipment
and technology, each can get along without the other. Soviet
petroleum operations would be less efficient and growth In
production might be smaller than would be the case with US
equipment and technology. Nonetheless, the USSR has managed
without US help and could continue to remain self-sufficient
in oil and gas ?aihile earning substantial amounts of foreign
.exchange from exports. The United States, on the other
hand, could use Soviet oil and gas, but the amounts obtained
have been and probably would continue to be small relative to
total US requirements.
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Soviet Hard Currency Payments
In the past decade the USSR has been unable to generate
sufficient exports to finance growing imports from
hard currency countries. (Table 1)
? Since 1965, deficits have been financed chiefly
by credits. The Soviets' rebuilt their depleted
gold reserve, selling almost none.
0 In 1972 and 1973 Soviet hard currency deficit
rose dramatically -- averaging $1.5 billion a
year -- because of record imports of grain and
equipment.
O Soviet gold was used to finance about 40% of
the 1972-1973 deficit. credits took care of
the rest.
? Soviet debt is expected 'to exceed $4 billion
in 1974. (Table 2)
? To ease its debt burden and to generate ex-
ports, the Soviets have concluded a number of
so-called cooperative ventures with Western
firms which call for repayment of credits
extended in the products developed by the
venture.
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The US has provided the Soviets with substantial credits
since the May 1972 Summit.
? About $500 million in long-term Eximbank
credits.
a About $500 million in private credits
matching Eximbank credits.
0 About $500 million in 3-year CCC credits for
grain.
p About $200 million in medium- and long-term
credits from banks and other financial sources.
But' there has been a turnaround in the Soviet hard currency
picture.
o High oil and raw material prices will increase
Soviet exports substantially and grain imports
will drop in 1974. An export surplus of $1.5
billion is expected in 1974 and possibly a larger
surplus in 1975.
e High gold prices provide an additional cushion.
At $150 an ounce,' sales out of current pro-
duction would earn the Soviets over $1 billion
in 3.974 and even more in subsequent years.
The stronc* Soviet hard currency position will improve the
USSR's economic bargaining power for the next few years.
o Moscow can now afford to pay cash. It recently
agreed to buy roughly $800 million worth of
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equipment for the Kursk steel complex in this
fashion and has hinted that it might make
similar offers to US companies.
? The USSR can resist high interest rates and
is likely to bargain hard on other commer^ial
terms.
? The Scviets can also consider postponing exports
of some commodities, such as diamonds which
probably will bring higher prices in the future.
In the longer term, payments prospects are less favorable,
however.
? Declining oil exports by the end of the decade
will curb the increase in export earnings.
? Debt will grow if Moscow chooses to maintain
the growth of imports.
o Total debt could rise to as much as $13 billion
by 1980.
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Table 1
USSR Hard Currency Trade Deficita/
million US $
Year Exports Impor
ts
Balance
1965 1,374 1,56
0
-186
1966 1,516 1,75
5
-238
1967 1,711 1,61
6
+95
1968 1,909 2,01
8
-109
1969 2,125 2,43
6
-311
1970 2,197 2,71
1
-514
1971 2,652 2,95
5
-303
1972 2,815 4,17
1
-1,357
1973- 4,817 6,56
6
- 1, 749
1974b/ 1,500 6,00
0
+1,500
a. Based on official Soviet data.
b. Estimated.
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Soviet Credit Drawings.and Repayments from the Developed West
Million US $
Year
Credit Inte
res
t Repayment of
Net
End of Year
Drawings Paym
ent
s Principal
Credits
Debt
1965
.190 1
7
1966
275 2
0
1967
305 2
9
1968
510 3
8
217
.255
951
1969
630 5
7
309
1316
.1970
715 7
9
326
1722
1971
682
374
204
2029
1572
1030
457
2608
1973
1690
3641
19742/
1410
4194
a/ Preliminary
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Soviet Foreign Economic Policy Toward the West
The chief Soviet goal in trade with the West is to ob-
tain equipment and technology to raise the level of
Soviet industrial technology and to achieve production
goals more rapidly than Communist resources permit.
Lately the Soviet leadership has increasingly empha-
sized the value of Western technology `o boos-',-, lagging
productivity and to narrow the large and widening
technological gap vis-a-vis the West.
O Soviet imports from the 'West have doubled
since 1971 -- from almost $ 3 billion to an
estimated $6 billion in 1974.
? New Soviet contracts for Western equipment
increased from less than $1 billion in 1971
to $2.6 billion in 1973, and probably will be
higher in 1974 (see Table).
Soviet policy has also emphasized cooperative agreements
with Western governments and firms to acquire technology
and capital.
0 Cooperative ventures, mainly in resource
development, have become a major Soviet
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vehicle for attracting Western investment.
Large projects are under way in the chemi-
cal, forestry, and energy fields.
*Long-term cooperation agreements with Western
governments have encouraged similar agreements
between the USSR and individual Western firms.
The US has become a major target in efforts to secure
advanced technology, equipment, and other commodities.
O Soviet imports from the United States rose
from $150 million in 1971 to $1.2 billion in
1973. Grain inflated the totals, but imports
of equipment increased from ;60 million to:
$200 million in the same period.
O Soviet contracts for US equipment have in-
creased and will keep imports from the US in
1974 at high levels, despite a decline in
imports of grain.. Imports of US equipment may
reach $400 million.
A The USSR is seeking US capital, technology, and
know-how to help develop Soviet resources and
industry. Large gas and oil deals are currently
in abeyance,hut large plant and equipment deals
are being negotiated.
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O US-Soviet S&T agreements have led to about 30
Soviet technology agreements with US firms.
Soviet Equipimant Orders from Developed West a/
Million US $
1971
1972 19
73
1974 bi
Total
850
1,695 2,60
0
1,845
US
240
320 45
0
500
W.
Germany 145
'370 49
0
20C
Fran
ce 80
480 42
5
445
Jap
an 140
135 20
5
100
Ital
y 65
165 62
5
250
UK
120
75 15
5
210
Othe
r 60
150 25
0
140
a/ Rounded to nearest $5 million.
b/ January-August.
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"19.74 Grain P,-.osPects in the USSR and Eastern Europe
The USSR and Eastern Europe are expected to have
good but not record grain crops this year. The harvest in
both area; should largely cover domestic needs, major
imports from the West will not be necessary.
Grain Production
We believe that the 1974 Soviet grain crop will be
198 million tons -- short of the official goal of 206
million tons but still the second-largest grain crop in
Soviet history.
Rainfall, the most important determinant of grain
yields, was abundant throughout most of the USSR during
May and June. At the end of June, it appeared likely
that the output goal would be achieved.
In July, the weather took a turn for the worse. As
the grain reached the harvesting stage in the West, heavy
rains lodged the plants and hindered the harvest. Because
much of the cut grain was left in the fields too long
grain losses were high and the milling quality of the wheat
was reduced. In the East, the weather was hot and dry while
the grain was in the critical heading stage. We estimate that
the drought destroyed 8 million tons of grain -- primarily
wheat.
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Prospects for Soviet Imports
The USSR will need 200 to 210 million tons of grain
to cover domestic requirements and normal export commit-
ments in FY 1975. Since carry-over stocks from last year's
record harvest are 20 to 30 million tons, a crop of 198
million tons should be sufficient to make large-scale
grain imports unnecessary in FY 1975. The sharp drop in
grain purchases and a return to the usual level of grain
exports will reestablish the Soviets as net exporters of
grain in FY 1975.
The Soviets indeed have bought only small quantities
of grain so far this year. Most of the 1 million tons of
corn and wheat scheduled for delivery in FY 75 are leftovers
from 1972 and 1973 contracts with the US. In addition,
a small amount of corn was recently purchased from Argentina.
The Soviets can use the imported grain to offset
shortfalls in certain kinds of grain. The corn will help
feed the growing livestock herds; the wheat may be used
to make bread since the milling quality of this year's
wheat crop and the carryover stocks is doubtful.
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Grain Production
We estimate that the 1974 East European grain crop
at 72 million metric tons -- 12 tons below the 1973 record
set in 1973. Although record crops were harvested in
East Germany and Czechoslovakia, Poland's crop -- usually
about 30% of the East European total -- flirted with
disaster throughout the growing season. Nevertheless,
Poland harvested about 20.5 million tons of grain, only
6% below the previous year's record. The results were
also mixed. in the southern countries. Hungary had a bumper
harvest, but Bulgaria failed to improve over the past
two harvests, while Romania. had its second poor harvest
in a row.
Prospects for East Europe~:n Imports
East European grain imports in FY 75 are projected
at 9 million tons, compared with 8 million tons in FY 74.
The USSR probably will supply 4. million tons, mostly wheat.
* Bulgaria, Czechoslovakia, East Germany, Hungary,
Poland
and Romania.
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.Based on past trading patterns, the East Europeans will look
to the United States for 2.0 to 2.5 million tons of grain,
mostly corn, while seeking the balance from other Western
.sources,
The northern countries will account for almost all of
the imports. East German and Czech requirements are expected
to be about 3-1/2 million tons and 1-1/2 million tons,
respectively. Poland probably will buy slightly more than
3 million tons. All these countries have the option of reduc-
ing grain imports by purchasing other feeds, such as oilcake
and meal, or by cutting livestock goals.
In the South, Romania already has received $31 million
in CCC credits to buy US grain. Because of a poor corn crop,
Bucharest asked for an additional $19 million in Cr'C credits
last wei Nevertheless, Romania will be able to export some
700,000 ? ys of grain, mostly wheat, ? about the same as in
FY 74. Bulgaria is likely to export about 300,000 tons of
wheat, almost all to Middle Eastern and African customers.
Hungarian grain sales -- possibly as much as two million
tons -- should offset much of Budapest's large trade deficit
with the West, which approached $300 million in the first
half of 1974.
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