#18 - JRL 9062 - JRL Home
RIA Novosti
February 21, 2005
TENDERS FOR NATURAL RESOURCES EVOKE SOME DISCONTENT
Moscow. (RIA Novosti economic commentator Vasily Zubkov).
Will Western companies be able to bid in tenders for Russia's natural resources? Some analysts believe that Russia is encroaching on the rights of foreign companies by refusing them access to the auctions. Is this really the case?
First of all, it cannot be said that foreign companies are victims of discrimination. The deposits they will be prohibited from owning account for less than 10% of the country's reserves and are already called strategic. They include the Sakhalin-3 oil project, the Sukhoi Log gold deposit in Siberia, which is the world's largest, the Udokan copper deposit and some others. The procedure for non-residents' access to the remaining 90% of the fields will remain the same. There will be no additional conditions imposed on foreigners' participation. Importantly, the innovation will not be applied to any projects in which foreign companies have already invested money.
Secondly, foreigners may even take part in closed tenders as minority shareholders in a consortium with Russian companies. The only condition is that the controlling stake should belong to Russian companies. This, of course, can be seen as a preference for Russians. However, Russia's minister of natural resources, Yury Trutnev, says that it is not at all important whether a company is private or state-owned. The most important point is that Russia maintains control over the strategic fields.
Thirdly, many Russian companies registered in offshore zones feature among the "discriminated parties." One is Sibneft, whose Russian owners registered it in an offshore zone to reduce taxes. Mr. Trutnev indicated that these companies would have the same rights as any other Russian company if they set up subsidiaries in Russia and made the structure of their authorized capital transparent. These "rights" naturally mean access to the fields. So there is a hope that the capital exported to offshore zones will start returning home.
Has Russia done anything new? Of course, not! Every country on the commodities market imposes some or other restrictions on foreign production companies: Mexico, Venezuela, the Arab East and Maghreb, Indonesia, Norway - the list can be continued. No one seems to be inclined to criticize the Norwegians for giving foreigners no more than 20% of their oil sector. None of the oil majors, for example, Exxon, BP, Elf Aquitaine or Shell, has been up in arms about this.
Accordingly, the accusations that closed tenders are continuing the Kremlin's policy to establish state control over the strategic economic sectors can be acknowledged, but nothing more.
Any country uses its advantages in its national interests. Unfortunately, this maxim has been poorly implemented in Russia in the last 15 years. This may be why the country has still not achieved the industrial level of the late 1990s and why a third of the population lives in poverty. But then Russia leads the world in terms of the growing ranks of its millionaires and billionaires.
Mr. Trutnev believes the nation's interests in natural resources are fairly simple. "We want people in Russia to work, earn high wages, which is where we are well behind Europe, and the budget to receive taxes regularly," he says. At present, the minister believes national interests suffer from foreign-owned companies that most often export commodities unprocessed. So Russian enterprises are starved of what they need and thousands of Russians find themselves out of work.
It could be also suggested that by closing some tenders to foreigners, Moscow would like to correct the foreign investment misbalance. Today, all the money goes only to the energy sector or, to be more exact, to hydrocarbon production. Any changes in the rules here evoke a pained response from investors. Oil prices are very high and the profitability is fantastic. So the government sets new conditions for receiving the right to produce oil and gas.
It is hard to accept the fact that up to 70% of oil remains in the wells after exploitation. The situation, naturally, has to be reversed, so Russia is restoring the system of state control over production. It will revoke the licenses of unscrupulous companies. The number of medium and small producrion companies will simultaneously increase. For example, the number of licenses given in 2005 will increase fivefold in comparison with 2004. The new version of the law on subsurface use will meanwhile provide answers to many questions, including with regard to any investment friendly commodity projects.
Russia faces a different task. It has to make its natural resources, including oil and gas, interesting for international companies, and to attract state-of-the-art technology and investment. At the same time, the country has to establish globally accepted controls over these companies' activities and protect its national interests.