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Sunday Telegraph: Investors in Russia ‘face new rules’

By Sylvia Pfeifer,
Last Updated: 12:15am GMT 25/03/2007

Western investors in Russia’s energy sector need to be aware that the rules of engagement have changed, the president of Europe’s top development bank has warned.

Jean Lemierre, the president of the London-based European Bank for Reconstruction & Development, said in an interview that potential investors needed to be consider that “the Russian government has made very clear that the pattern of investments in these strategic sectors has changed”.

While there were still opportunities for investment in these sectors, they were “under rules that may be different from the ones we have seen before”, he added.

Western investors have become increasingly concerned at recent moves by the Russian government to renationalise its strategic energy reserves. Royal Dutch Shell was last year forced to sell a large stake in its Sakhalin-2 energy project to Gazprom, the state-controlled gas giant. The move came after a campaign lasting almost a year in which the Russian government threatened to cancel construction permits on environmental grounds. There has also been speculation that Moscow wants to take control of Kovykta, a giant gas field controlled by TNK-BP, BP’s Russian joint venture.

News on Friday that TNK-BP planned a surprise bid for a stake in Rosneft, the state-controlled oil group, has provoked criticism that the move is little more than a diplomatic gesture aimed at giving the auction legitimacy and winning favour for BP in Moscow. The Rosneft stake, of nearly 10 per cent, belongs to Yukos, the bankrupt oil major.

“BP will make a bid so that they can score points with [President Vladimir] Putin and gain access to him on issues like Kovykta,” said Robert Amsterdam, the lawyer of Mikhail Khodorkovsky, the founder of Yukos, who is serving an eight-year prison sentence in Siberia.

Lemierre, who was speaking before news of TNK-BP’s plans broke, said Russia was not alone among countries, especially developing ones, where the energy sector is under the control of the state. Referring to the production-sharing contracts that Russia agreed with some of the Western oil majors, including Shell, in the 1990s, at a time when oil prices were low and Russia was eager for foreign capital, he said: “We must also understand that there are two points of view. You can have a point of view here but also in Moscow. . . You have probably got a conflict between contracts that were signed and the perceived fairness of the contracts.”

What was crucial, he added, was that if a policy was changed it was done in a “transparent way”.

The Sunday Telegraph revealed earlier this year that the EBRD had decided to walk away from the Sakhalin project after the emergence of Gazprom as a major shareholder. Asked whether the move was a deliberate snub to President Putin, Lemierre said the bank had never taken a final view on helping to fund the project and still needed to understand how Gazprom intended to finance it.

Russia accounted for more than a third of new investments made last year by the EBRD, which was established to encourage free markets in the former Soviet bloc. Lemierre, who will be visiting some of Russia’s regions this week, said that, despite the increased role of the state in some sectors, the bank was confident a market economy was developing in the country.

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