Foreign investors would be given easier access to Russian deposits. Source: ITAR-TASS
Moscow is planning to give foreign investors easier access to deposits in remote regions of the country. Experts say the best possible scenario for foreign companies to invest in exploration is to set up a joint venture with Russian counterparts.
is increasingly interested in expanding its engagement with foreign investors
in the exploration of its mineral deposits. In February, talks were held with
Asian investors over shelf exploration of the Russian northern seas. Russia’s
Ministry of Natural Resources has announced plans to ease the access of foreign
investors to exploration projects. Natural Resources Minister Sergey Donskoy
talked about these plans in late February.
deposits are currently grouped into a number of categories. Large deposits have
federal status – a list of these deposits was made in the summer of 2008 and
included almost 1000 surface sites (including 163 deposits containing
hydrocarbons). Federal status was also given to internal sea waters,
territorial sea and Russia’s continental shelf, as well as the sites that are
strategically important for defence and security. Under the applicable legislation,
federal resources include deposits containing uranium, diamonds, pure quartz
materials, nickel, beryllium, tantalum, lithium, niobium, rare yttrium group
elements and platinum group metals. Furthermore, they include deposits with at
least 60 million tonnes of recoverable oil reserves, 75 billion cubic metres of
natural gas reserves, 50 tonnes of vein gold and 500,000 tonnes of copper. Only
Russian companies with state stakes of more than 50 percent are entitled to
explore deposits on the continental shelf of the Russian Federation.
February, the ministry said that foreign investors would be given easier access
to Russian deposits. According to Sergey Donskoy, there are plans to abolish
‘federal’ status for the deposits in remote regions, especially in Eastern
Siberia and the Far East. The ministry has also submitted a proposal to
automatically convert exploration permits into production licenses. Up until
now, this has been impossible if a strategic deposit was discovered as a result
recommend that those who want to take advantage of the new rules and explore
Russian deposits study the unique features of Russian mining and develop a
sound strategy for entering the market. Denis Borisov, Oil & Gas Centre
research director at Ernst & Young Moscow, is certain that if more liberal
procedures are introduced, the competition for new Russian assets will be quite
strong. “As a result, even if current barriers are lifted, foreign companies
are unlikely to be allowed to have 100 percent in oil projects; therefore, they
will have to look for partners among Russian vertically integrated oil
companies,” he told RIR.
applicable legislation doesn’t allow areas and reserves within a single
licensed site to be split. Russia keeps to the ‘one license – one licensor –
one development plan’ principle. That is why the best scenario would be to set
up a joint venture. This option will not call for sophisticated legal
procedures and will not cause regulators to ask additional questions, because
there have already been precedents. Borisov mentioned the Naryanmarneftegaz
project between the privately owned Russian oil major LUKOIL and the US
ConocoPhillips, in which the co-investors own 70 percent and 30 percent,
option for cooperation is to purchase a shareholding in operating companies.
But the acquisition of an oil company in Russia is likely to entail lengthy
procedures with Russian state regulators, as well as many moves to integrate
the acquired assets into a group, according to Aforex analyst Narek Avakyan. He
cites the example of Renault-Nissan’s purchase of AVTOVAZ automotive giant, a
process that started several years ago.
recommend that investors should not be put off by the high tax rates in Russia.
Avakyan believes that Russia’s main advantage is its concessional tax rates and
support from the country’s administration. As far as new projects are
concerned, the state will likely grant tax preferences for the resulting
internal rate of return to reach 16.3 percent, meaning that investor worries
about the drawbacks of the Russian tax system (especially the practice of
taxing revenues rather than profits) are ungrounded, Borisov says.
All rights reserved by Rossiyskaya Gazeta.