The Australian: UK warns investors to beware of Russia

Daniel Dombey, London and Neil Buckley, Moscow
June 08, 2007

THE British Government is stepping up its warnings to businesses about the risks of investing in Russia in the wake of Moscow’s moves to take control of energy assets from foreign companies.

The Foreign Office is telling companies looking to invest in Russia that there is now more evidence of risks faced by outside investors.

News of the move comes as Prime Minister Tony Blair is due to hold what he termed “frank” talks with Russian President Vladimir Putin at the Group of Eight leading industrialised nations summit in Germany.

Speaking on the flight to the summit, Mr Blair’s official spokesman reinforced the tougher advice, saying: “It’s common sense that companies are only going to invest where they believe the investments are secure.”

He added that Europe had told Russia it had to demonstrate its commitment to democratic values.

“If not, Russia isn’t going to attract the investment it wants and needs.”

Officially, the British Government warns companies seeking to do business in Russia that the “challenges of market entry should not be underestimated”.

But a government source said that of late the UK sought “to give balanced advice and on an evidential basis”.

“There is more evidence now of the various different risks,” the source said. “It’s important to keep this in perspective – there are still massive rewards.”

The Kremlin’s most recent assaults on energy companies have involved UK interests – Royal Dutch Shell’s controlling stake in the $US20 billion ($23.6 billion) Sakhalin-2 project in Russia’s far east and the licence held by BP’s Russian venture for the huge Kovykta gas field in Siberia.

TNK-BP looks almost certain to lose its licence to develop the $US18 billion Kovykta field by the end of this month, although the company is hoping to negotiate a deal with Gazprom.

Britain and Russia have also been at odds over the UK’s extradition request for a Russian national it accuses of the murder last year of Alexander Litvinenko, the KGB agent turned UK citizen.

One banker said the British Government had recently urged caution about expanding in Russia because of tensions between Moscow and London.

Although Mr Blair and Mr Putin are both attending the G8 summit, the two are not scheduled to have a bilateral meeting until today.

Investment risks and deteriorating relations between Russia and the West have failed to damp overall business enthusiasm for Russia.

A survey by the main foreign business lobby in Moscow last year found that 40 per cent of foreign investors increased sales more than 30 per cent in 2005, and nearly a third reported that profits rose more than 30 per cent in the same year.

Foreign investment in Russia has hit new highs in each of the past three years.

Additional reporting: Jean Eaglesham, Heiligendamm, and Peter Thal Larsen, London

 

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