Infrastructure For General Use - 10 December, 2002 - News

Russian legislation allows the state to pick the pockets of foreign investors on legal grounds
It seems that foreign investors are unlucky with the joint projects Sakhalin-1 and Sakhalin-2. The other day, a high ranking Russian official confirmed that there are considerable reasons for foreign investors to worry about the fate of their money invested in development of the Sakhalin shelf.

The 4th annual Russian energy summit was held in Moscow last week. Russian Deputy Minister of Energy Vladimir Stanev told foreign investors at the summit that the infrastructure of the Sakhalin-1 and Sakhalin-2 projects, which foreign investors are constructing for themselves with their own money, in fact will be an infrastructure for general use. This information was released by RusEnergy.

PRAVDA.Ru has reported about the difficulties that foreign investors faced when they started the development of oil and gas fields on the Sakhalin shelf. The problem is that Russian Duma deputies strictly criticized the operators of both projects. According to Russian legislation on agreements for the production division, up to 70% of the equipment used for the projects must be Russian produced. As it turned out, Exxon Mobil and Royal Dutch-Shell (the main shareholders of the projects’ operators) buy Japanese pipes for the projects, which, by the way, is quite logical: Russian metallurgical enterprises don’t produce such pipes, and it takes little time to deliver these pipes from Japan. In addition, Japanese companies are also shareholders of the projects’ operators. However, the deputies ignored these serious arguments. Instead, they threatened that they would toughen the law on agreements for production division. In response, the operator of the Sakhalin-2 project, Sakhalin Energy, threatened to stop work on the project. Later, the company relaxed its position concerning the problem. However, the main contradiction between foreign investors and Russian authorities still remains: foreigners dislike the law on production division agreements.

RusEnergy reports that Deputy Vladimir Stanev considered the possibilities of exporting oil from the Sakhalin shelf, which will be produced in the network of the Sakhalin-3 and Sakhalin-8 projects; the deputy thinks that pipelines currently under construction will lead to a prospective terminal in the Bay of Perevoznaya on the Pacific coast. The terminal will be built by the Russian state-run monopoly Transneft; it is also to be a terminal point of a pipeline that is planned to be laid from the city of Angarsk along the Baikal Amur main line.

The Russian deputy minister of energy said that the above-mentioned projects will use the routes built for the Sakhalin-1 and Sakhalin-2 projects at the beginning, but then they will use the route developed by Transneft in Primorye.

This intention voiced by the Russian deputy sounds like a nightmare for Western businessmen who are used to acting in accordance with Western business ethics. It turns out that Exxon Neftegas, the operator of the Sakhalin-1 project, spends its money on the construction of an oil pipeline leading to the port of De Kastri in Russia’s Khabarovsk region. Sakhalin Energy, the Sakhalin-2 project operator, will spend its money on the construction of gas and oil pipeline of 700 kilometers in length, which will lead to an enterprise producing liquefied natural gas and to a prospective oil export terminal near Korsakov. At that, each of the companies are to construct pipelines for transporting their own products. However, the Russian official says that in accordance with the Russian principle of equal access, other companies will also be able to use the pipelines.

Westerners understand this position as a flash-like expropriation on “legal” terms. As it turns out, the Russian Ministry of Energy has the right to dispose of private foreign pipelines as it likes. Moreover, as it is fixed in the federal law “On natural monopolies,” Russian officials can regulate the tariff on oil pumping in such pipelines.

Naive foreigners think that it is an awful mistake and they again and again try to explain to Russian officials that it’s impossible to act like this. They provoke international scandals and threat to go on strike to make Russians change their laws. As RusEnergy reports, the State Duma isn’t even going to review the law “On natural monopolies.” On the contrary, the deputies are considering how to toughen the law.

Russian law makers don’t care how foreign investors will feel in Russia after that, and foreign investors that have already joined the development of the Sakhalin shelf will have to add extra expenses into the projects’ estimates, which are explained by presence of hangers-on. How are they to explain it to their shareholders? God knows. It is highly likely that they will have to redirect all questions to the Russian leadership, which, in its turn, promises naive foreigners a favorable climate and that conditions will soon be created for foreign investments in the country.

Kira Poznakhirko PRAVDA.Ru

Translated by Maria Gousseva

Read the original in Russian: https://www.pravda.ru/economics/8329-investment/

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