[home page][map of the server][news of the server][forums][publications][Yabloko's Views]

The New York Times, February 20, 2003

Russia Wants to Restrict Incentives to Seek Oil

By Sabrina Tavernise

The Russian government has proposed restrictions on tax-rate and regulatory guarantees used to attract foreign investment to its oil industry. The proposal, a product of a meeting yesterday between Prime Minister Mikhail M. Kasyanov and domestic oil executives, called for the government to offer guarantees of future tax rates and regulatory treatment only to the largest and most capital-intensive development projects. Many foreign companies have said that they cannot invest in Russia without such guarantees, but BP went ahead without them when it made a $6.75 billion investment last week, by far the biggest to date.

Guarantees "should be the way for production at fields that are very risky, far away, with poor infrastructure," said one government official involved in the talks. But for easier-to-reach oil fields, the official said, "why give more breaks to something that is already very lucrative?"

Today's proposal, still preliminary, appeared to reflect a shift in attitude in Russia toward the idea that the domestic oil industry is capable of developing its own reserves and that foreign investment should take the form of equity stakes in Russian oil companies, like BP's deal, or else joint ventures with Russian companies.

The domestic oil industry, led by Yukos Oil, has been complaining about the tax guarantees, known as production-sharing agreements. With the vast improvement in Russia's legal and tax systems in recent years, the Russian oil companies contend, the agreements are no longer needed and give unfair advantages to foreign rivals.

Foreign companies, for their part, contend that Russia is still too mercurial a place for them to make multiyear, multibillion-dollar bets without any safeguards. According to an oil company representative who has seen Mr. Kasyanov's proposal, which is still being polished by his deputies, the proposal calls for auctioning the rights to 23 oil and gas fields for which guarantees have previously been promised; only the fields that drew no bidders without guarantees would be made eligible for them.

Foreign oil companies reacted cautiously. Several agreed that special tax treatment should be used only for fields that are particularly expensive to develop, like those in Russia's Arctic North. But they said that using auctions, which in Russia have been notoriously opaque and prone to influence by powerful local interests, raised red flags.

"The ground has shifted against the production-sharing agreements," said Vladimir Konovalov, executive director of the Moscow-based Petroleum Advisory Forum. "We'll see in the next couple of weeks how that will be implemented through legislation." One foreign oil company representative was upbeat about the proposal, saying it would serve to "break the deadlock" that has paralyzed the system for years.

"We've been saying there are certain fields we can't do without the regime," the representative said, referring to the system of tax and regulatory guarantees. "The government is saying, `Let's put that to the test.' It's a market-based test." Only three oil development projects are now working under production sharing agreements: Two consortium-run projects in the waters off Sakhalin Island in the Far East, one led by Royal Dutch/Shell and the other by Exxon Mobil, and one Siberian field developed by TotalFinaElf.

Legislators who have worked on the rules governing the tax guarantees said today that it was too early to tell if the proposal would survive the long process of full cabinet discussion, Kremlin vetting and a parliamentary vote. "The production-sharing agreements have lived through so many difficult days and last minutes," said Alexei Melnikov, a deputy in Russia's lower house. "It's still far from clear what the government wants."

 

See also:

Production Sharing Agreements

The New York Times, February 20, 2003

[home page][map of the server][news of the server][forums][publications][Yabloko's Views]

english@yabloko.ru
Project Director: Vyacheslav Erohin e-mail: admin@yabloko.ru Director: Olga Radayeva, e-mail: english@yabloko.ru
Administrator: Vlad Smirnov, e-mail: vladislav.smirnov@yabloko.ru