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International Herald Tribune: Business is different in Russia

Posted by Daniel Altman in Doing the business, High energy

Let’s say there’s a company operating in your country, and it’s not quite living up to the environmental standards set by your government. So you call them on it, and tell them to clean up their act. What happens? Well, perhaps they decide to argue in court. Or perhaps they pay a fine. Or perhaps they agree to strict monitoring and reporting to ensure compliance with environmental regulations. But do they ever offer to sell a government-controlled competitor a big stake in their company?

You can’t fight Gazprom hall. (Alexander Zemlianichenko/AP) That’s what has happened in Russia, where the government has put the screws to Royal Dutch-Shell over its management of the Sakhalin Island energy project, as Andrew Kramer reports. It’s a funny thing; on paper, this looked like just another matter of environmental enforcement. But Shell knew what Russia really wanted – something not in any regulatory rulebook – and now they’ve offered it: a big share in Sakhalin for Gazprom. If this offer makes the environmental issue go away, it will unequivocally demonstrate that the regulatory action was just a ploy.

The energy industry has the highest profile in the Russian economy, and the government’s desires for consolidation and control are no secret. Still, it would be interesting to know about other industries where similar strong-arm tactics are being used. Who else is being bullied, loyal readers?

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