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. Last Updated: 07/27/2016

Russia Hinders JVs From Exporting Oil

The Russian Energy Ministry has suspended export licenses for foreign joint ventures in the oil industry for at least one month, in a surprise move that could cost millions of dollars in lost export earnings.


Oil industry officials said Friday that the reason for the suspension was that joint ventures had not supplied documents proving they were not exporting oil illegally.


The suspension is part of a broader move to crack down on exports by the Russian government in an effort to establish greater control and stop what the government says is the illegal flight of capital out of the country


Earlier this week the Foreign Trade Ministry threatened to cancel the export licenses of 94 trading firms, including 47 joint ventures, who had failed to provide information on their exports.


But the decision to suspend oil exports by joint ventures will concern many big oil firms who say they want the Russian government to guarantee their right to export their oil at world prices before they will invest.


Fuel and Energy Minister Yury Shafranik said this week that foreign investment was the only way to stop the drop in production in Russia's oil sector, which has seen crude oil output fall 30 percent in two years.


The joint ventures affected by the decision include Yuganskfracmaster, part-owned by Canadian Fracmaster Offshore, KomiArticOil, part-owned by British Gas and Gulf Canada and Vanyuganeft, part-owned by Occidental Petroleum and up to 12 other firms.


The Russian state oil exporter, Nafta Moskva told the firms last week that they had been left off the list of exporters, saying that they had failed to submit the right documents to Transneft, the state oil transportation agency.


According to George Reese, the managing partner in Moscow for consultants Ernst & Young, the decision to suspend exports contradicts Russian law on exports.


Most Russian firms can only export within quota limits set by the government, but an exemption was granted to joint ventures to encourage foreign investment in new production.


This says that oil joint ventures with more than 30 percent foreign ownership have the right to export all their production. The joint ventures must submit documents proving that the oil they export comes from their wells.


But the Fuel and Energy Ministry's press officer, Alexander Degtyaryov said Friday that exports had been stopped because the ministry suspected that "joint ventures sell more oil than they actually produce".


This would mean that joint ventures are exporting crude oil which they have bought on the local Russian market, rather than just exporting their own production. In effect, they would be using their joint venture status to bypass export controls.


Alexander Kochnev, department head for Transneft, the Russian shipping agency, said in an interview that the government had suspended exports until July because joint ventures were shipping too much oil.


He said that the Economics Ministry had planned the share of joint ventures in Russia's total export's volume for 1993 at 7. 5 million tons and joint ventures had gone past this figure. Total Russian exports were about 60 million tons in 1992.


But the joint ventures rejected the accusations and dismissed the decision as one more confirmation of Russia's legal instability. "We have not done anything wrong", said Kirill Skidan, marketing director for Komiarcticoil.


Skidan said, that if his company does not sell oil in June, it will have to reduce production and delay construction works on a number of wells.


Another joint venture executive who asked not to be named said the decision to suspend exports for a month would cost his company at least $10 million in June.


"Things like this happen here all the time, and we just don't know what to expect next", he said.