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. Last Updated: 07/27/2016

Shafranik: West Will Invest if Protected

Western companies are ready to press ahead with oil and gas projects in Russia worth up to $60 billion provided they get adequate investment protection, Fuel and Energy Minister Yury Shafranik said Tuesday.

Speaking in Moscow at the opening of an international conference on Energy and Law, he said Russia's fuel and energy complex needed about $20 billion in annual direct investment.

Russia, once the biggest crude oil producer in the world, now ranks third after Saudi Arabia and the United States. Officials say this year's output could drop to about 310 million tons, down from 354 million tons in 1993.

"The required investment levels cannot be attained by credits alone," Shafranik said, adding that economic instability and lack of legislation were deterring companies from committing large sums to Russia.

The minister said major oil and gas projects being worked on with foreign partners envisaged investments totalling $60 billion. These included plans to develop areas around the Far East island of Sakhalin and the Far North Timan-Pechora area.

"But the current economic instability and the frequent changes Russia makes to its legislation dampen the interest foreign investors have shown," Shafranik said.

"The fact that they are still ready to invest up to $60 billion requires us to adopt, as a minimum, a stable legal framework," he said, adding that if the foreign projects were not completed, it would be a blow to Russia's economy.

U.S. Deputy Energy Secretary Bill White said American companies accounted for most of this sum.

Itar-Tass quoted Deputy Fuel and Energy Minister Pyotr Nidzelsky as saying Russian companies could invest $5 billion in the sector this coming year if appropriate legislation was passed.

Among the long-awaited legal documents making their way through parliamentary procedures are a law on oil and gas, which was given a first reading in June but met presidential objections and is being revised.

Another major piece of legislation will be a law on production-sharing, which should provide the framework for revenue-splitting and remove other uncertainties that have delayed such major contracts as Sakhalin-2.

The Sakhalin-2 deal, worth $8 billion, was signed last summer on the basis of a presidential decree issued in December, 1993. But members of the consortium involved in the project say they would like parliament to give extra guarantees before spending big money.

The consortium includes Marathon Oil Co, McDermott International Inc, Mitsubishi Corp, Mitsui & Co Ltd and Royal Dutch/Shell.

Vladimir Medvedev, head of Russia's Oil Producers' Union, an industry lobby group, said presidential decrees were not sufficient to guarantee foreign investors a stable legal framework.

Medvedev, who is also co-chairman of the New Regional Policy faction in the Russian parliament, said a draft law on production-sharing was a priority and would be examined by early December, despite strong opposition from some parties.

"This would be a major milestone that would allow the integration of the Russian energy sector into that of the West," White said.

The government is also expected to adopt new regulations on procedures for negotiating production-sharing agreements and on the tax regime for foreign investors. White said taxation should be based on income or profits rather than on revenues that do not account for costs.