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Petroleumworld.com: Investors weather latest Russian intervention in energy market

By Amelie Herenstein
AFP: MOSCOW
Petroleumworld.com 06 25 07

The planned sale of a Siberian gas field by Britain’s BP to Gazprom is only the latest twist in a Kremlin campaign to reassert control over Russia’s vast energy resources, analysts said Friday.

Friday’s announcement of a preliminary agreement on the sale by Gazprom and BP executives came after months of Russian government threats to revoke the licence on the Kovykta field for not meeting production timetables.

The deal carried echoes of a similar agreement last December in which a consortium of foreign energy majors led by British-Dutch giant Shell sold a majority stake in the vast Sakhalin-2 oil and gas project to Gazprom.

That multi-billion-dollar deal came after a number of environmental probes against the Sakhalin-2 projects for alleged breaches of environmental regulations.

As soon as the deal was clinched the probes were wound up, prompting many to conclude that they were selectively pursued to achieve the state’s wider aims.

For some business people the fact that the state is intent on taking back control of the energy sector seems to be an accepted fact of life.

Foreign investment continues to flow into the country, despite some unease.

The World Bank has reported that a record amount of foreign investment — 9.8 billion dollars — flowed into Russia in the first quarter of this year, three times as much as in the same period last year.

“It’s increasingly being incorporated into the view on the part of foreign investors that the fuel sector is a strategic one,” said Yaroslav Lissovolik, chief economist at Deutsche UFG investment house in Moscow.

At an investors’ conference in Saint Petersburg earlier this month, BP chief executive Tony Hayward said the company would continue to invest in Russia.

The chief executive of British-Dutch energy giant Shell, Jeroen van der Veer, also said in an interview with Kommersant daily in June that the company planned to increase its investment in the country.

There has been some criticism, however.

Earlier this week Europe’s largest electrical retailer, DSG International, said it had decided against entering the Russian market owing to economic and political risks.

Meanwhile British Prime Minister Tony Blair provoked a furious reaction from Russian officials earlier this month when he suggested foreign investors were becoming wary of Russia.

And in a rare example of public criticism within Russia, metals magnate Vladimir Potanin this week also criticised the behaviour of government-appointed directors on company boards.

The authorities are attempting to address one major criticism, of a lack of clarity in investment rules.

Discussions are currently under way on a law that would define “strategic” sectors in the economy, such as energy.

“This is the most important thing we hope to see coming from Russia: a clear delimitation of what is strategic and what is not,” Lissovolik said.

“Once we have a clear set of rules, this is something that I’m sure would benefit the investment outlook.”

AFP 22 1602 GMT 06 07

Copyright© 2007 AFP. All Rights Reserved.

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