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The Guardian: UK oil firms cheating investors, says Russia

· Miners also accused of exaggerating reserves
· Fears of renewed Kremlin attack on resources sector

Terry Macalister
Monday August 27, 2007

Russia stepped up the pressure on British-listed energy and mining companies yesterday with an influential Moscow regulator alleging that some of them were “cheating” investors by exaggerating their reserves.

Oleg Mitvol, deputy head of the environmental watchdog Rosprirodnadzor, called on the London Stock Exchange and other authorities in the UK to stamp out the alleged abuses.

His call comes at a time when the Kremlin has been taking back Russian assets from UK companies such as Shell and BP which it believes were obtained on the cheap when times were bad in Moscow.

“I think they [investors] are already duped or cheated. I don’t think we have to wait for a big crisis to occur in order to see this problem,” Mr Mitvol said.

“When a proprietor-licensee has data which can be different from the state data, this is firstly abnormal and secondly a fraud. I can add that soon there will be results of our work with one company announcement which will significantly reduce reserves,” he said.

In the spring the Russian Interfax news agency suggested Rosprirodnadzor was looking into the activities of a swath of small London-listed companies.

Yesterday he declined to say which companies particularly concerned him. “We will be working on all companies to implement certain arrangements to bring data into compliance with the state’s certified reserves figures,” he said.

“In general the problem companies are those which grow up from zero during two to three years and reach a valuation of hundreds of millions of pounds.”

Mr Mitvol suggested there were ridiculous abuses. He said a gold-mining company that had held its licence for several years had done “only one thing since then – collecting money on the London exchange from foreign investors. The only other thing it does: it changes the deposit development time frames every two years.”

The head of the environment watchdog, who has a reputation among western companies for being an idiosyncratic but formidable antagonist, said he would like to see closer cooperation between Russian and British regulators over reserves statements. “We are speaking here only about cooperation for the exchange of information, which is not complicated at all. I don’t see any harm for the London regulator to ask his Russian peer, and we will be more than happy to help,” he said.

Mr Mitvol is also concerned about what he sees as the failures of American auditors for not checking the details they are receiving from oil and mining groups with the Russian regulators.

“The explanation is easy. Most of the reserves data does not correspond with GKZ [state reserves committee] numbers so if these auditors have some orders every three months now and retain very significant fees for the work they do, they will lose all of their clients if they start to check for accurate data.”

The environmental watchdog denied there was any political agenda behind his latest attempt to clamp down on foreign oil and mining houses.

“The target of the Kremlin – I mean government – is to establish effective use of the subsoil and to obligate companies after they obtain their licences to do something, but not to hold licences in abeyance … to force companies to speak to investors about risks and also to preserve and improve the image of Russia.”

Mr Mitvol has a history of controversial remarks and while some have dismissed them others believe they carry the weight of the Kremlin.

Pelham, a London-based public relations company that represents Imperial Energy and Urals Energy, said it had no knowledge of any current difficulties but added that some previous misunderstandings between the Russian regulator and British-listed firms were the result of different ways of calculating reserves.


BP and Shell are still reeling from the intervention in their Russian businesses of the environmental watchdog, Rosprirodnadzor. The agency accused BP of not using its licence properly at the Kovkta field in eastern Siberia. BP earlier this year was forced to announce it had passed control over to state-owned Gazprom. Shell had a similar run-in over its Sakhalin-2 gas scheme in the far east of Russia. Rosprirodnadzor accused Shell and its Japanese partners of breaching their licence guidelines on Sakhalin by failing to look after the environment. Shell sold a controlling stake in the world’s largest liquefied natural gas scheme to Gazprom and the attacks on the performance of the operating group has ceased. The Kremlin denies it is orchestrating these events, but does believe some foreign companies won unfair advantages in the past.,,2156785,00.html and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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