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Globe & Mail (Canada): Russia tries to lure foreign investment

Despite bad rap, official says Russia welcomes business from Canada
SHAWN MCCARTHY

GLOBAL ENERGY REPORTER

OTTAWA — The Russian government is pressing ahead with efforts to attract foreign investment and says it wants Russian companies to be welcomed around the world — despite criticism in the West that the Kremlin employs heavy-handed tactics that threaten foreign investors and consumers in other countries.

Russian Natural Resources Minister Yury Trutnev is in Canada this week to lure investment to the energy and mining sectors, and improve bilateral co-operation in oil field services and geophysical mapping.

Mr. Trutnev insisted his country gets a bad rap for cracking down on major oil companies that have failed to respect the country’s admittedly minimal environmental standards. Foreign analysts have portrayed the environmental controversy as a smokescreen aimed at squeezing major oil companies such as Royal Dutch Shell.

The minister, a close ally of President Vladimir Putin, rejected suggestions that the Kremlin has turned hostile to foreign investment in such key sectors as oil and gas, though he has introduced legislation that would limit foreign ownership of major deposits to minority stakes.

Mr. Trutnev met with federal Natural Resources Minister Gary Lunn and explained that Russia was simply seeking to protect its national interest by preserving domestic control over strategic assets.

But he also told his Canadian counterpart that there are vast opportunities for Canadian companies looking to do business in Russia in oil and gas, mining and forestry, and that there will be growing interest among emerging Russian multinationals to invest in Canada.

“We are seeking common grounds that will make our companies even more comfortable working in both countries,” Mr. Trutnev said.

In an separate interview, Mr. Lunn said he believes Canadian companies can operate safely and profitably in Russia. “I’m not aware to date of a list of complaints from Canadian companies,” Mr. Lunn said. “In fact, we have some positive stories from Canadian companies doing mining over there.”

He said he understood the rationale for the Russian law on foreign investment. Mr. Lunn said the government is similarly reluctant about state-owned foreign companies taking majority ownership of Canadian assets, preferring they invest through joint ventures.

Russian companies are only now starting to take to the world stage. OAO Gazprom, a state-owned natural gas giant, has signalled it wants to invest in North America and elsewhere. That could include a stake in a liquefied natural gas (LNG) facility being built by Petrocan and TransCanada PipeLines Ltd. in Gros Cacouna, Que., if Petrocan wins the right to partner with Gazprom in an LNG facility near St. Petersburg.

The Russian minister was scheduled to be in Toronto today to meet with several companies that have investments in Russia, including Barrick Gold Corp., Kinross Gold Corp. and SNC-Lavalin Group Inc.

Some Western analysts warn that Russia is unreliable, with its state-owned companies serving as pawns in the Kremlin’s global geopolitical strategy rather than acting as strictly commercial companies.

Andrew Neff, an analyst with Global Insight Ltd., said the Kremlin is in the final stages of revamping its oil and gas sector to ensure that state-owned companies control the major assets, and foreign investors are welcome as minority partners.

Mr. Neff said the Kremlin felt its oil and gas assets were undervalued when Western companies signed production-sharing agreements before the major escalation in energy prices and costs of development.

The most recent controversy centres on Royal Dutch Shell PLC’s $22-billion (U.S.) Sakhalin-2 project, which has been subject to major delays as Moscow investigates alleged environmental destruction.

Mr. Trutnev insisted yesterday that the environmental crackdown on Sakhalin is not a smokescreen to renegotiate the production-sharing agreement, or to force Shell to accept a Russian majority partner.

The minister said a government commission has found that Shell caused massive ecological damage around Sakhalin Island, and will have to pay billions of dollars in mitigation and fines.

High River’s Russian experience

Don Whalen has heard the complaints and criticisms from foreign companies about Russia, but his High River Gold Mines Ltd. has enjoyed nothing but co-operation since investing in a privatized gold miner there 10 years ago.

High River, a Toronto-listed company, is 85-per-cent owner of OJSC Buryatzoloto, which has two mines that produce a total of 150,000 ounces a year and a $100-million (Canadian) project in development that will produce another 100,000.

Mr. Whalen, High River’s deputy chairman, also is chair of the Canada-Eurasia-Russia Business Association, a two-year-old confederation of businesses with interests in Canada and the former Soviet Union.

As such, he helped organize a Toronto luncheon today for about a dozen Canadian business executives and Mr. Trutnev.

Mr. Whalen said High River tested the Russian tolerance for foreign companies extracting profits four years ago when it had Buryatzoloto pay out a $1-million dividend to its Canadian parent.

More recently, the company has been bringing investment into Russia. The gold miner said Russian authorities are eager to control strategic sectors, such as oil and gas, but are also eager for foreign investment in the broader economy.

“They need foreign investment — they need it big time and they know that they need it,” he said.

Russians in Canada

OAO Lukoil

Russia’s largest oil company, Lukoil is privately owned. Lukoil North America operates a chain of gasoline stations in 13 U.S. states, and buys and sells some $1-billion worth of oil and petroleum products in the Canadian market.

OAO Gazprom

The state-owned gas and oil company is looking to invest in downstream natural gas assets in countries where it will be shipping liquefied natural gas. Gazprom may take a stake in a proposed LNG terminal in Quebec if it accepts project owner Petrocan as a partner in a Russian proposed LNG plant.

OAO SeverstalThe Russian steel-making giant launched a bid to acquire Hamilton-based Stelco Inc. two years ago. Severstal is a global company that sells into Canadian markets.

Canadians in Russia

PetroCanada

The Calgary-based oil and gas company is proposing to partner with OAO Gazprom to build a liquefied natural gas facility in Russia. Petrocan is on a short list of would-be participants, with the decision to be announced in the new year.

Kinross Gold Corp.The fourth-largest North American-based gold producer owns the Kubaka mine in eastern Siberia. It is also exploring undeveloped regions for future prospects.

High River Gold Ltd.The small Toronto-based producer invested in two Russian gold mines 10 years ago, and now owns 85 per cent of the Russian subsidiary. It has invested $100-million in a new mine.

TEXT: SHAWN McCARTHY

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