Scrambled Political Forecast Muddles Russia Investments

By Chris Woodyard Houston Chronicle | THE JOURNAL RECORD, July 2, 1996 | Go to article overview

Scrambled Political Forecast Muddles Russia Investments


Chris Woodyard Houston Chronicle, THE JOURNAL RECORD


WASHINGTON -- With Russian voters poised to say "nyet" to a Communist as their next president, few observers are more relieved than those in the U.S. oil industry.

Giants such as Exxon, Marathon and Conoco had feared that Communist Gennady Zyuganov would spoil plans to invest billions in Russia's faltering oil industry if he won the presidency.

But the jitters aren't over yet.

In a nation as new to democracy as Russia, President Boris Yeltsin's re-election isn't exactly a cinch.

And if he wins by a narrow margin in Wednesday's runoff election, Yeltsin's lack of a clear mandate could further muddle an already ambiguous policy on allowing foreign investment to reinvigorate Russia's exploration and development programs.

"Yeltsin has always had two faces, and the question is, which face would he show and how long would he show it," said Matt Sagers, energy services director for the Planeco consultancy in Washington, D.C.

One face allows more foreign deals and democracy, Sagers said. The other is more akin to the kind of closed, command economy Russia has had in the past.

Some enormous deals are at stake. Russia has significant oil reserves but lacks the technology or investment capital to unlock them.

"There is an enormous backlog" of potential deals, said Gordon Feller, publisher of Russian Business News in San Rafael, Calif. "I could count 20 off the top of my head that are big."

But political uncertainty has put deal-making on hold for the past six months. About the only activity, experts say, has been in areas where contracts required pushing ahead.

Most negotiations have come to a halt until companies can determine whether Russia will continue to be politically stable and welcome foreign investment.

"Clearly those projects are waiting for a time when there is more political certainty," said Jim Langdon, a lawyer specializing in international deals for the legal firm Akin, Gump, Strauss, Hauer & Feld in Washington.

The holdup is partially legislative. The Russian government has been slowly allowing its "production sharing agreement" to wind through the legislative process. The law, critical for determining how oil riches will be divided, was enacted in January 1995. But foreign oil companies have been pressing for changes to address questions about taxation and other issues.

Some major projects are moving forward, however. Projects in the Sakhalin Islands area have attracted the most attention.

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