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The Moscow Times: Editorial: Oil, Gas and the Uncertain Environment

Wednesday, December 13, 2006. Issue 3560. Page 8.
The news that Shell has offered Gazprom a stake in the Sakhalin-2 project doesn’t come as a surprise to many. The state-controlled gas giant has been looking to get involved in the project for at least six months and, if information from industry insiders is accurate, the involvement will be significant.

When it comes to the energy sector, it seems pretty clear that the government gets what it wants. And what it wants now is control.

Supporters of the government’s stance vis-a-vis energy point out that Russia is not alone in pushing for control in extraction industries. Strong state presence and control in the oil and gas sector is the case in developing countries such as Venezuela, Mexico and Saudi Arabia. The sector in Norway is also largely government controlled.

Even if we ignore the debate over the merits of state ownership, the question about how to realize such a policy remains. The answer to this conundrum, in turn, speaks volumes as to the accepted rules of the game.

Evidence is continuing to mount that the rules not only involve giving the state what it wants, but also letting it set the price. Yukos provided the first example, as the value of the company was whittled down by back tax claims to the point that Rosneft, the state oil company, was able to get a bargain on the purchase of its main production unit, Yuganskneftegaz.
In the case of Sakhalin-2, the instrument has been the Natural Resources Ministry, which began filing environmental complaints not long after a deal to bring Gazprom into the project foundered in July. Gazprom says the ecological and other problems faced by the project will figure into the price it is willing to pay for a stake, so do not look for these problems to disappear before an agreement has been reached on the terms.

What happens afterward will surely attract the attention of potential foreign investors. If the violations of environmental regulations cited by the Natural Resources Ministry simply disappear — as have many of the tax claims against Yuganskneftegaz — this would help substantiate critics’ claims that the government is using regulatory pressure to gain valuable assets at reduced prices.

The damage probably has been done. Even if the pressure remains, it will be hard to shake the impression that it only arose to help Gazprom get its hand on a large stake. Nobody can say for sure why the Natural Resources Ministry got involved. Given investors’ famous aversion to uncertainty, that’s a problem. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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