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. Last Updated: 07/27/2016

British Firms Say Teamwork Necessary

Russia must work with foreign oil majors if it wishes to keep pace as a leading energy supplier on global markets, a senior Shell executive said at an investment forum Wednesday.

With the majority of the country's new reserves located in "frontier" environments, the country faces an enormous task, both in terms of technological expertise and financial demands, to explore and develop these fields, said Chris Finlayson, Shell's country manager.

"I think there is not yet a full appreciation of the challenges Russia faces offshore," he said, noting that Russia's offshore reserves were seven times those of the North Sea off the east coast of Britain, which took 40 years to fully develop. "There is plenty of room for all of us."

Finlayson's comments, at a forum organized by the Russo-British Chamber of Commerce, came as Shell and the country's other biggest foreign investor, BP, are licking their wounds after bruising battles with the Kremlin over the past year have seen both lose control over their flagship energy project in the country.

Earlier at the forum, senior British officials took pains to emphasize that recent political disputes between Moscow and London -- from the killing of former agent Alexander Litvinenko to the Kremlin's anger at Boris Berezovsky's call for regime change in Russia and a round of tit-for-tat expulsions of diplomats -- should not impinge on what is overall a burgeoning trade and investment relationship.

"Russia makes news for all the wrong reasons," a determinedly upbeat British Trade and Industry Minister Lord Digby Jones told the forum, stressing that British officials were looking to keep business strictly separate from politics.

"My job is not to get involved in all that other stuff. We have a hugely successful business relationship," he said, noting that British foreign direct investment in Russia was $15 billion in the first half of 2007 alone, while 40 percent of all listings on the London Stock Exchange last year came out of Russia.

Yet in a year that has seen Shell cede control of Sakhalin-2 and TNK-BP sell its stake in Kovykta, both after sustained state pressure, many fear the lines have become blurred between politics and business.

And in an indication of how frosty the dialogue has become in recent months between the two countries, a number of senior Russian officials scheduled to speak were notably absent from Wednesday's forum.

Among the no-shows were Finance Minister and Deputy Prime Minister Alexei Kudrin, Kremlin economic aide Arkady Dvorkovich, IT and Communications Minister Leonid Reiman and executives from Gazprom and Rosneft. The sole government representative to speak, Deputy Finance Minister Sergei Shatalov, focused on listing Russian economic achievements and left without taking questions.

Political relations between Moscow and London took a turn for the worse in November, when Litvinenko's murder in London sparked a bitter diplomatic dispute.

Since then, tensions have escalated, with Britain calling for the extradition of murder suspect Andrei Lugovoi, and Russia angrily denying the request and in turn demanding the extradition of Berezovsky. The stakes were upped in July, when London expelled four Russian diplomats, prompting a reciprocation from Moscow.

"We don't intend that any of these political [tensions] will get in the way of our business relationship," said Sir Tony Brenton, Britain's ambassador to Russia. Brenton, who complained last year of being subjected to months of harassment by members of pro-Kremlin youth organization Nashi after he attended an opposition conference, said it was a difficult job at the moment to make bilateral relations work well.

Making that job more difficult, Brenton said, was the British media's coverage of Russia, which he described as presenting a skewed impression of what it is like to do business in the country. "The picture painted in the press is very often barely comparable with the country as people who live here really see it," he said, adding that three new companies approached his embassy every day looking to set up operations in the country.

Other participants in the forum stressed the need for foreign investment in the country, both in the natural resources sector and elsewhere.

RusAl executive Alexander Livshits, a former finance minister under President Boris Yeltsin, warned that legislation currently under consideration that restricts foreign investment could hamper development in some sectors.

"This is a dangerous tendency both for the country and for the global economy," Livshits said, referring to the tendency toward protectionism.

Diversification away from the oil and gas industry has been the Kremlin's watchword this year, and forum participants said there were very attractive opportunities in the regions and in the consumer segment.

Nevertheless, for small and medium-sized companies doing business in Russia, red tape and a weak judiciary remain a dominant feature.

Lord Jones, a former head of the Confederation of British Industry, urged the Kremlin to establish an environment that gave investors confidence. "Businesses need a stable, reformed environment in which to succeed," he said on the sidelines of the forum.

But investors remain concerned that there is inadequate legal recourse when things go wrong.

"Sometimes politics plays a more important role than the text of the law," said Paul Melling, a partner at law firm Baker & McKenzie. "Our job is to get out the message that there are 80 percent of cases where the system works."

Others were less upbeat, citing the everyday hassles facing small businesses.

Helene Lloyd, director of TMI, a small Moscow-based marketing company, said there was "no substance" to the government's pledges to help small firms.

"There is nothing here to support the growth of a small business," she said, noting that her business was largely unprotected should employees, particularly on leaving the company, infringe the rules laid out in their contracts. Also, the statutory two-week notice period leaves a small company vulnerable in the case of staff leaving en masse, she said.

Staff Writers Tai Adelaja and Max Delany contributed to this report.