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. Last Updated: 07/27/2016

Oil Decrees Address West's Concerns

Combined reports


Russia will amend its oil production-sharing law by passing about 12 decrees that take into account comments from Western oil investors, Fuel and Energy Minister Yury Shafranik told Interfax Friday.


Shafranik was quoted as saying the revisions, "containing specific correctives which have noted the comments of Western investors," would emerge between April and June.


He said the revisions would create a mechanism under which the law could function, but added that he found some Western investors' criticisms of the existing law unfounded.


"The (current, unamended) production-sharing law shies away from taxes," he said.


But he also said two or three issues in the current, unamended law had worsened conditions for foreign investors.


One of those issues, he said, was limited recourse for foreign investors in international courts should their contracts in Russia be broken off.


Shafranik gave no details on what the 12 or so amendments would look like.


Stephen O'Sullivan, an oil analyst with MC Securities in London, said one major concern of the foreign investors is a provision to renegotiate an agreement if economic conditions change.


"This is the major concern. Foreign investors are looking for legal and physical certainty. And here this certainty goes away and this worries them," he said in a interview Friday.


Dan Lubash, an oil expert from Merrill Lynch in London, said there are several other points in the law that investors complained about.


Among these, he said, were clarifying arbitration procedures in Russian or international courts, the need for special government and parliamentary approval for certain major contracts, and provisions that a certain percentage of equipment used in ventures must be Russian-produced.


"The first variant of the law was not what people expected and could not help in bringing money into the Russian oil industry," he said in an interview. "We look forward to the amendments."


President Boris Yeltsin signed the production-sharing law at the end of December 1995 after it had undergone revisions promoted by conservative parliamentarians.


Western firms waiting for a legal framework before proceeding with multibillion dollar investments in Russia's energy sector have said the law in its existing form fails to provide adequate guarantees.


?A delegation from Kiev arrived in Moscow on Friday to try to resolve a row with Russia over tariffs on Russian oil passing through Ukraine's section of the Druzhba (Friendship) pipeline.


A Russian Fuel and Energy Ministry spokesman said representatives of Ukraine's State Committee on Oil and Gas would meet their Russian counterparts and might resolve the quarrel by next week.


Negotiations in Kiev last month had set a deadline of Sunday for resolving the row over Ukraine's unilateral raising of fees for carrying Russian oil, he said.


But an official at Yukos, a top Russian oil firm which sends some of its output through Druzhba to Eastern European markets, said Russian oil companies had already agreed to pay higher Ukrainian rates to preserve a crucial export outlet.


Moscow disputes Kiev's 10 percent increase in transit fees last month.


Oil supplies to the Czech Republic, Hungary and Slovakia were blocked for several days in January because of the row. (