Russia to foreign investors: find deposits, develop them

A leading Italian oil and gas company, Eni, discovered a massive gas field, potentially valued to contain 850 billion cubic metres of gas, off the coast of Egypt on August 30. The company will soon get a licence granting it exclusive rights to develop the new gas field, which could potentially supply gas to Egypt for several decades.

Russia plans something similar for such companies operating in the country. Foreign companies may soon benefit from similar developing rights, if legislation currently being worked out becomes law.

The Vedomosti business daily reported in late July that a draft law had been drawn up by the Russian Ministry of Natural Resources, by which foreign companies would be able to develop strategic deposits in Russia if they should discover them.

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Under the draft law, foreign companies would be able to apply to the government for permissions to explore and develop natural resources, including oil and gas. If permission is granted, it would be valid for three years.

If the licensee discovers a deposit of federal significance, it would be granted the right to develop the deposit site without the need for further approvals from the federal government.

The need for foreign expertise

Deposits of federal significance include oilfields with recoverable reserves of 70 million tons and more; gas fields with reserves of 50 billion cubic meters and more; gold deposits starting from 50 tons and copper deposits, from 500,000 tons.

“As far as oil and gas are concerned, there are a lot of large but difficult deposits left, whose development requires expensive technologies, for example deposits in the Arctic,” said Sergei Pikin, head of the Energy Development Foundation.

In order to develop those gas and oilfields, Russia needs to attract foreign companies, which have the relevant experience and technologies – but this is currently obstructed by Western sanctions that restrict the export of hi-tech equipment to Russia in the oil and gas sector.

Earlier, in 2008, Russia adopted amendments to the law “On Mineral Resources” which considerably restricted foreign companies’ access to deposits of federal significance. According to Mikhail Krutikhin, a partner with the RusEnergy consulting company, this has hindered foreign investment.

At the moment, he explained, a foreign company that has discovered a large deposit is not banned from developing it, however, the government can strip it of this right, after reimbursing it the costs. The new mechanism is intended to remove this risk.

“Users of mineral resources get the incentive to invest considerable funds in completing exploration and evaluation work, with firm guarantees in place,” the authors of the bill explained.

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Gold mining sector to benefit?

Experts predict that in future there may be an upsurge in interest toward the gold mining sector too.

“One of the main problems of the Russian mining industry is that there has been practically no exploration in recent years. And one of the reasons is that there were no guarantees of obtaining the right to develop a discovered deposit,” said Ayrat Khalikov, an expert with Gazprombank’s center of economic forecasts. With the adoption of the new law, he adds, a change in this trend can be expected.

The first foreign companies entered the Russian gold mining sector in the 1990s to develop primary gold deposits. In the mid-1990s, there were already up to 80 foreign companies, mainly from the U.S., Canada and Australia, conducting exploration and development of precious metal deposits in Russia.

In 2002, foreign companies began to show interest in the Russian gold mining sector again, including Canada’s Kinross Gold and the Russian-British Peter Hambro Mining (which was later renamed Petropavlovsk).

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