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Reuters: Foreign Managers Praise Russian Investment Climate Despite Problems with Energy Projects

Created: 05.10.2006 11:20 MSK (GMT +3), Updated: 11:24 MSK
 
Investors in Russia pulling in record profits in areas ranging from banking to retail were defiantly upbeat about their prospects at a conference on Wednesday, Oct. 4, despite the souring atmosphere for big energy deals.

Paul Melling, managing partner in Russia for international consultancy firm Baker & McKenzie, said things had never been better in his 18 years of working in Russia.

“There are issues for those involved in major oil and gas projects but that happens in other countries too when politics coincides with business,” he told a conference in Moscow organized by the Russian-British Chamber of Commerce.

Russian officials have recently stepped up pressure on the Royal Dutch Shell-led Sakhalin-2 oil and gas project and the neighboring Sakhalin-1 project, led by Exxon Mobil, demanding environmental and technical checks.

Analysts see the pressure as part of a Kremlin campaign to regain control over the projects by forcing operators to sell out or cede major stakes to state controlled firms. Government officials deny this.

Even in oil deals, Russia is extremely liberal, said Charlie Ryan, chief executive officer of Deutsche Bank in Russia.

“What country on this planet allows foreign companies to own and operate its hydrocarbons? I’m really running out of names. Russia is actually extremely liberal in allowing foreign companies to own its hydrocarbons,” he told the conference.

The ongoing crisis over production sharing agreements with Western oil majors is not a concern for the majority of members of the Russian-British Chamber of Commerce, Melling said.

“Ninety-five percent of the members of our chamber aren’t there. They are in Russia where sales are growing by between 30 and 70 percent year on year. Compared to where things were many years ago, they are in paradise.”

Rostislav Ordovsky-Tanayevsky Blanco, president of Rostik Group which runs a chain of restaurants, agreed: “Of course we’d love to have a better accounting system. To open anything in Russia you need to have 200 permits, and that breeds corruption,” he told the conference.

“But everything is relative,” he said. “We are in paradise here. Remember 100 percent inflation? Remember the days when the ruble wasn’t convertible? All in all, things are much better than they were before.”

“We see the likes of IKEA, Citibank, Ramstor, Siemens, BP all enjoying their early arrival here. The guys in Britain and the United States don’t realize things are happening here.”

The business optimism contrasts with the results of a recent World Economic Forum survey on global competitiveness where Russia dropped to 62nd place in its global competition index from the 53rd last year.

Despite eighth consecutive years of GDP growth, record gold and currency reserves and mounting oil export profits, Russia is less competitive than India in the 43rd place, and China in the 54th place in the list led by Switzerland, Finland, and Sweden.

The WEF survey, which polled 553 leaders in Russia this year, ranked its judicial independence 110 out of 125 countries and property rights among the worst in the world at 114th place.

Also eating into competitiveness are weak institutions and favoritism in government decision-making, said the survey.

When asked if his company had ever been the victim of selective justice, Vyacheslav Kopiyev, deputy chairman of holding firm AFK Sistema, he said: “We haven’t seen any selective enforcement so far.”

Russia also ranked 28 out of 30 countries in Transparency International’s 2006 bribery index published on Wednesday where it was outdone only by China and India.

Andrei Bugrov, deputy chairman of the board at InterRos, the holding company of metals tycoon Vladimir Potanin, joked in reference to corruption: “Just keep it in single-digit rates, just like our inflation.”

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