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. Last Updated: 07/27/2016

Local Oil Firms, Western Giants

July 15 is the deadline for submitting bids for the right to develop 11 oil fields in the Khanty-Mansiisk national okrug in the north of Tyumen. It is expected that the giants of the world oil industry will take part in this competition: Exxon, Mobil, Shell, Amoco, and probably others. But it is already clear that the number of bids will not equal even one-quarter of the number of companies that visited in January for a preview of the conditions of the tender. The Tyumen tundra hosted 37 foreign firms and companies.


This tender will be the second major incidence in Russia's history of attracting large strategic investors to the oil industry on a competitive basis. The first was last year, involving oil drilling rights in the Sakhalin shelf. Khanty-Mansiisk oil is very attractive. It is not juSt the huge reserves of oil in the 11 fields that are being bid for. Not far from these desolate regions are the pipelines, and the Tyumen-Surgut highway and railroad line.


But many potential competitors are taking their time with their bids. What is keeping the large firms from bidding? Political instability in the country? Certainly. The confusion surrounding the legal basis? That too. The constantly changing rules of the game? Undoubtedly.


But those who work in the Russian market have learned to deal with these disasters in some fashion. It is much more difficult when specially organized difficulties arise along with the "natural calamities" of Russian reality. One such difficulty, which foreign entrepreneurs are running into again and again in Russia, is protectionism.


Influential Russian directors and major entrepreneurs are trying more and more often to pressure politicians to protect them from foreign competition, legally or otherwise. The Sakhalin tender, with all its problems, was conducted as a fair competition between oil companies. The international competition on the Udokan copper deposits in Eastern Siberia, one of the largest in the world, had a slight tinge of protectionism. As a result an unknown Russian firm, the Udokan Mining Company, won out over world leaders in the copper mining and refining industry.


The Khanty-Mansiisk tender was unfair from the beginning. Competing firms are not bidding on the right to develop the fields, but for the right to work these fields together with a Russian firm. All 11 fields have already been awarded to specific Russian oil companies -- in essence, this is a competition for the right to become a partner in a joint company. Theoretically this plan can be justified: Russian oil companies are still too weak to compete on equal terms with Shell or Amoco.


So the potential winners for each of the oil fields will be paired in advance with a Russian company. There are, of course, serious and responsible oil companies among the Russians, but there are also complete unknowns, with no experience and no resources.


Now the giants of the world oil industry are thinking things over: Should they take a risk and join with such companies in the hopes of future profits, or just write off potential gains and refuse to play "Russian roulette"?