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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Gator II who wrote (40126)	3/16/1999 4:59:00 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 95453

Energy boom in former USSR fails to materialize China Daily MOSCOW (Agencies via Xinhua) _ When the Soviet Union came apart at the end of 1991, many of its former republics expected to become rich by luring foreign investment to develop their vast energy resources. Seven years later, combined former Soviet oil output is little more than half its 1987 peak, oil prices are at a 25-year low and most members of the former union, including energy producers, are in an economic mess. How has it all gone wrong? Industry sources point to a mix of political and economic mismanagement, legal and tax regimes which scare investors away, exaggerated hype over reserves, low oil prices and huge differences in attitudes between the producers and investors. The longed-for boom shows no sign of coming soon. "The main reason underlying all the setbacks is that there is still a huge wall between the Western perception of what to do in these countries and the Soviet-type mentality of the host countries," says Yevgeny Khartukov, a veteran of the Soviet oil industry and head of the GAPMER oil consultancy in Moscow. "To find a common business language between those who have never been on the same footing is not just a question of signing a couple of deals or waiting for a change of a couple of governments. It takes decades, the change of generations." The Soviet Union used to be the world's biggest oil producer. Peak output of well over 12 million barrels of crude per day was half as much again as Saudi Arabia's. Because the industry concentrated on huge, geologically simple Siberian reserves discovered in the 1960s which were relatively easy to exploit, other areas got low priority rankings. In Azerbaijan, the source of more than half the world's oil in 1900, and Kazakhstan and Turkmenistan, the other main energy republics, little was done to develop remote, costly fields. Independence was meant to change all that. These states immediately started attracting foreigners to develop the wealth. In Russia too, foreigners began to look for opportunities, awaiting the implementation of promised legislation to create a favourable tax regime and protect their investments. But Russia now faces a economic crisis following currency devaluation and a debt default last year. Foreign oil companies are leaving Azerbaijan, and Turkmenistan is exporting a fraction of the gas it sold before independence. Only Kazakhstan is enjoying some success in raising oil exports. Although Russia's reserves are huge and relatively inexpensive to exploit compared to marginal fields such as those in the North Sea, lawmakers consistently failed to approve laws protecting investors until this year. Production sharing laws, which protect investors by giving them a chance to seek redress through international arbitration, were only amended when all other sources of investment had dried up, said Richard Freeman, president and CEO of Timan Pechora Co LLC, an exploration company formed by foreign oil majors. "It was only when Russia realized there would be absolutely no financial help at all from Western governments and there was not going to be any more portfolio investment for the time being, that they realized foreign direct investment was the only investment they would get," he said. The tax regime has also been subject to so many changes that few can keep up. One analyst said the regime was "strangling the industry." As a result, few foreign oil companies have risked doing much more than opening representative offices in Moscow. Last year Russia produced 6 million barrels per day compared with more than 11 million in the 1980s. (Copyright 1999) _____via IntellX_____ Publication Date: March 16, 1999 Powered by NewsReal's IndustryWatch ...back to top